UK banks are expected to win approval for massive pay increases in the coming weeks after convincing influential shareholder advisers that hiking maximum payouts for chief executives by more than 40% would give them a competitive edge. ISS and Glass Lewis, two prominent proxy advisory services that suggest how shareholders should vote on company policies at annual meeting, have backed NatWest, Barclays and HSBC over plans to substantially increase potential payouts after the removal of the UK banker bonus cap in late 2023. NatWest Group is proposing a 43% increase in the maximum for its chief executive, Paul Thwaite, giving him the chance to earn up to £7.7m for a single year’s work. Meanwhile, his Barclays counterpart, CS Venkatakrishnan, could earn up to £14.3m, a 45% hike, if shareholders approve a new pay policy next month. HSBC is suggesting a 43% increase for Georges Elhedery, for a maximum payout of about £15m. Glass Lewis and ISS said shareholders should be “mindful” of the significant increases, but sided with remuneration committees who argued payouts needed to compete with that offered at rival banks including on Wall Street. That includes JP Morgan, where the chief executive, Jamie Dimon, was paid $39m (£29m) last year. “Against these peers, Barclays’ pay proposals are well below market,” ISS said in its report ahead of the bank’s AGM next month. That could make it hard to recruit talented bankers, banks claimed. ISS said it recognised there was an “ongoing discussion on the competitiveness of executive pay in the UK market, especially for companies with a global presence and significant US exposure”. The London Stock Exchange and City lobby groups including the influential UK capital markets industry taskforce (CMIT) have claimed higher pay is key to luring top talent and US businesses to Britain. But NatWest, which does not have an international presence, has also secured the backing of proxy advisers. “We recognise that the company’s incentive opportunity is currently lower than that of its UK banking peers, as it remains the only UK bank that had not previously sought shareholder approval to raise the variable pay cap from 100% to 200% of fixed pay,” Glass Lewis said. NatWest is expected to shake off its remaining government shareholding and fully return to private hands within weeks, making it easier to raise pay. The decision by ISS and Glass Lewis to back the pay increases mark a significant shift in shareholder sentiment, and has also been coupled with a backlash against environmental, social and governance (ESG) standards. The focus on ESG prompted a raft of shareholder rebellions over pay in the early 2010s, including at HSBC and Barclays, as investors demanded a more measured approach by company executives after the 2008 financial crisis. But anxieties over the UK’s global standing post-Brexit, as well as Donald Trump’s crackdown on progressive policies such as diversity, equity and inclusion (DEI), have led to a significant social shift in corporate culture. ISS has already bowed to pressure over DEI, having said in February it would not recommend voting against any US board members for failing to meet gender and ethnicity leadership targets. Glass Lewis and ISS have also faced pressure from high-profile chief executives including Dimon, who last year said the proxy advisers had too much sway over shareholders, while criticising their foreign ownership structures. Glass Lewis and ISS are owned by Canadian and German firms, respectively. “I question whether American corporate governance should be determined by for-profit international institutions that may have their own strong feelings about what constitutes good corporate governance,” the JP Morgan chief executive said. NatWest will hold its annual meeting on 23 April and HSBC will host its shareholder meeting on 2 May. Barclays’ is scheduled for 7 May.
Author: Kalyeena Makortoff Banking correspondent