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Consultation responses

Executive Pay: Shareholder Voting Rights Consultation Response Form

Barry Walker
Executive Pay Consultation
Department of Business, Innovation and Skills
1 Victoria Street

26 April 2012

Dear Barry

Investor Relations Society response to Executive Pay: Shareholder Voting Rights Consultation

Thank you for giving us the opportunity to take part in the above consultation. I am pleased to enclose The Investor Relations Society’s response.

The Investor Relations Society’s mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community. The Investor Relations Society represents members working for public companies and consultancies to assist them in the development of effective two way communication with the markets and to create a level playing field for all investors. It has over 600 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250.

Following a specially commissioned survey of our members we carried out to help us frame our response to this consultation, we have found that executive remuneration is increasingly part of the conversation between IR teams and their investors, with 30% of our in-house IR members saying that investors are clearly or somewhat more engaged with investors regarding executive remuneration than one year ago, and 77% of the opinion that IR teams will be more involved in discussions with investors about executive remuneration in the future. Given this, and the proposals raised by the consultation paper that would, if enacted, rely on IR teams maintaining the two-way communication process between company management and shareholders, we are taking part in this consultation to ensure the IR perspective on the executive remuneration proposals is understood by Government as part of the overall issuer consideration.

We raise a number of concerns regarding the practical costs and implications of the proposed regulations detailed in this consultation. At the heart of these is that we feel there is a risk of inadvertently undermining shareholder value, if companies are mandatorily regulated to implement a new raft of executive remuneration measures that affect their companies’ abilities to react flexibly and effectively to specific circumstances and challenges. With delivering additional shareholder value the central tenet of this consultation, we feel that very careful attention needs to be given to ensure that overall UK competitiveness in fluid and globalised market places is not adversely affected through these proposals. As such, we feel that Question 1 is of particular importance and in our response we explain our concerns relating to an annual binding vote on executive remuneration along the lines mentioned. We hope that our concerns are constructive and wish to make it clear that we are not opposed to an annual binding vote on remuneration policy on principle - indeed, the opposite is true given the overall objective of linking incentive and performance to deliver shareholder value - however, we feel this is very much subject to the consideration of the potential negatives we identify.

One subject we would like to raise in particular is the role of proxy advisors in acting as a third party between issuers and investors. Proxy advisory as an industry has proliferated in recent years and a prominent concern of our members is that on occasion advisory firms have recommended to their clients (the underlying stock owner) that they vote in particular ways without necessarily appreciating the various issues and specific circumstances of the company at stake. Given the importance of management to company performance - and therefore shareholder value - the likely impact of proxy advisory firms on the proposed mandatory annual binding vote process cannot be discounted and requires consideration as a future source of contention if these proposals get the go-ahead.

Kind regards

Michael Mitchell
General Manager, The Investor Relations Society
Bedford House
3 Bedford Street
London WC2E 9HD
020 7379 1763

Published: 27 April, 2012