This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Vote Against Remuneration at RELX

ShareSoc is advising its Members to vote against the Remuneration Report resolution at the RELX Annual General Meeting on 21 April 2016. ShareSoc consider the pay of the CEO (£11 million in 2015 and £50 million since he became CEO) to be:

  • too high,
  • excessively complex (5 incentive schemes and 1/30th defined benefit pension scheme), and
  • incentive targets are too easy.


REXL has performed well since the CEO took over in 2009. Nevertheless, ShareSoc object to the remuneration of the CEO of RELX. The total remuneration paid to CEO Eric Engstrom over the past seven years was approximately £50 million.

Engstrom owns 929,191 shares, currently worth about £12 million. In addition, he has options, LTIPs and BIPs, that if all vested that the maximum, would be worth a further £20 million at today’s share price. Sharesoc Remuneration spokesman Cliff Weight said “In my opinion he already has enough long-term incentives. He should be required to retain his shares (and any incentive shares that vest in the future) until at least two years after his retirement. This should provide adequate incentive. Further awards of options and LTIPs are unnecessary.”

Weight added” I think that the schemes are too complex. In particular, there are too many (5) incentive schemes – bonus, BIP, LTIP, ESOS and REGP (BIP= Bonus Incentive Plan, LTIP = Long Term Incentive Plan, ESOS = Share Options and REGP= Reed Elsevier Growth Plan).

Buybacks of shares have been undertaken and an EPS performance condition utilised. Cliff Weight commented “The EPS growth target is too easy. The LTIP vests 52.5% for 6% EPS growth. However, share buybacks have averaged 2% per annum for the past five years. With the shrinking number of shares, profits have to only grow by 4% per annum to achieve the 6% EPS growth target.”

The ROIC target is 12.55% for the 2016 to 2018 LTIP award in order to achieve 52.5% vesting. This looks too easy compared to the last two years of 12.8% and 12.7% and the CFO’s comments “The post-tax return on average invested capital in the year was 12.7% (2014: 12.8%). As a significant proportion of our goodwill and intangible assets are held in US dollars, the strengthening of the dollar compared to the prior year has reduced the return on average invested capital. Excluding currency effects, return on invested capital would have increased to 13.4%.

Eric Engstrom is one of the few people in the UK entitled to a 1/30th accrual rate for pension. His “pension” is well above the HMRC tax approved limits, so is effectively a cash payment. The actual amount is difficult to estimate as it will depend on his final salary, which creates pressure to increase his salary each year (which has a knock on effect on the value of his incentives which are calculated based on his salary at the date they are awarded). RELX estimate the value of his increase in accrued pension in 2015 at £765,703. Given his total remuneration in the years 2009 to 2105 has been approx. £50million, there seems little reason to award such a generous “pension” arrangement. Such arrangements are divisive. ShareSoc recommend that any pension for a CEO should be on the same terms as other employees and no pension should be given above the HMRC limits.

Institutional investors rarely vote against companies that have performed well. However, this is a company that appears to have gilded the lily on a number of fronts. It important to send a message that such over-generous rewards are not in shareholders’ best interests. Not least that, if voted through, they set a standard about what is acceptable and create a ratchet effect for other companies.

Roger Lawson 18/04/2016 © ShareSoc

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