Yesterday was the dawn of a new era. The rules that impose the requirement of a binding, forward-looking vote on remuneration at UK listed companies came into force. Also there will be much clearer information provided on total remuneration, making it easy both to compare the figures with those of other companies and decide whether you like the numbers.
It might not totally solve the problem of excessive director pay in FTSE-100 companies, but it is at least a step in the right direction. ShareSoc strongly supported this initiative. The only slight downside is that it may make Remuneration Reports even longer.
But it won’t have much impact unless shareholders use their votes, so make sure you can and do vote at AGMs!
AIM and MS International Plc
Unfortunately one sector of the market that is not covered by these rules is AIM. So AIM companies will be able to continue to avoid having such a vote, and they don’t even need to have a retrospective Remuneration Resolution. Yes AIM is still the Wild West in terms of corporate governance which ShareSoc has commented on many times in the past.
Now it may be coincidence, but it’s worth noting that MS International, a fully listed company, announced yesterday that it will be moving to AIM. Shareholders will have a vote on this on the 24th October but the directors indicate they already have undertakings from 72% of shareholders to vote in favour (they need 75%).
Did they decide to do this to avoid the onerous commitments of a full listing such as the new remuneration rules? It’s worth looking at this company’s Annual Report. You will learn that last year the total board pay was £1.9 million when pre-tax profits were only £5 million. Was that an exceptional year? No – the corresponding figures for the previous year were £2.4m and £8.4m.
In other respects their corporate governance is also appalling with numerous areas where they do not comply with the UK Corporate Governance Code. For example, they have an Executive Chairman, no independent Non-Executives, no separate Nomination Committee, director contracts that lasted more than one year, etc (see page 43 of the Annual Report for the full list).
A paragraph at the end of the announcement on the move to AIM also contained a profit warning which you would normally have expected to be highlighted in such an announcement, and included in the title.
It would certainly appear that AIM is a more appropriate market for such a company. But how many fully listed companies will decide to move to AIM to avoid scrutiny of pay? Shareholders might vote for these moves because there are tax benefits of being on AIM (and no stamp duty in the future). But they may live to regret it later.
Note also that Shore Capital are the financial advisors and proposed future Nomad on this deal, a name readers may recall from other events at AIM companies.