Following a big shareholder revolt over Morrison’s decision to award executive bonuses and with JD Sports also likely to be in the firing line, Retail Week looks at why executive pay is becoming increasingly contentious.

David Potts Morrisons

Morrisons was rocked when shareholders rebelled over plans to pay chief executive David Potts a £1.7m bonus despite falling profits

Earlier this month, supermarket giant Morrisons was rocked when shareholders rebelled over remunerations proposals, including plans to pay chief executive David Potts a £1.7m bonus despite falling profits. 

More than 70% of shareholders cast votes against the proposals, despite more than 90% voting to re-elect Potts. 

The rebuke has left Morrisons seething both privately and publicly. After the AGM, the grocer spelled out its disappointment. 

The grocer said: “In the [remuneration] committee’s view, Morrisons performed exceptionally well for the nation during the first year of Covid with the executives widely recognised for their leadership.”

It added: “The remuneration committee believed that it was appropriate to apply some discretion to the remuneration of senior executives”. 

It is not just Morrisons that is facing the ire of its shareholders over executive rewards. Big businesses in other industries such as cinema chain Cineworld, events company Informa and property group Savills have all suffered backlashes in recent weeks. 

JD Sports' new flagship store on Oxford Street

JD Sports is facing a potential revolt over executive pay at its AGM

JD Sports is also facing a potential revolt over executive pay at its AGM on July 1. There had also been speculation that Boohoo would also be hit following a labour abuse scandal, although the fast fashion giant emerged unscathed from its shareholder meeting on Friday (18 June). 

So, what’s been driving this wave of shareholder unrest? 

According to one analyst, it is a long overdue pivot by investors to recognise the importance of environmental social and governance (ESG) matters. 

“ESG is huge at the moment with investors and it’s been driven by changes in accountancy practice,” the analyst said. ”Businesses now have to be able to meet a number of criteria, and it’s not just on carbon reduction - it’s also about labour practices, gender equality, general best practice, it’s a huge topic now.”

Why ESG is so important to shareholders

As Morrisons said in its note though, its record during the coronavirus crisis, ethically speaking at least, was all but unimpeachable. It was the first grocer to immediately pay small suppliers, offered a 10% discount to NHS workers, enhanced pay guarantees for staff who were sick or self-isolating with Covid-19, and gave staff higher wages.

One source says that shareholders, and the proxy advisory companies, are using ESG as way of retaining influence and avoiding the transfer of too much power to boards in turbulent times.

“I think that shareholders just hate the idea of businesses using discretion. And if for example they gave a nod to a retailer like Morrisons using discretion, that might embolden remcos [remuneration committee] in the future to use discretion - not because of the unusual circumstances of Covid-19, but to boost the bonus of an underperforming company.”

The brewing discontent at JD Sports stems from one of these advisory companies, Glass Lewis, which has urged shareholders to vote against the retailer’s “inappropriate” pay policy for executive chair Peter Cowgill

It has taken exception to Cowgill being handed a £4.3m special bonus, despite having taken a pay cut last year at the height of the pandemic. 

The advisory firm also said there had been inadequate succession planning at JD Sports, and a lack of progress on the board’s gender diversity.

As of the time of publication, Glass Lewis have not responded to a request for comment. 

“The best way for any listed business to avoid a shareholder revolt is ultimately still to deliver a profit”

For all that’s been said by Glass Lewis, the analyst believes the real problem shareholders have with JD Sports and Cowgill’s bonus is that it isn’t being paid according to best practice.

“This is a one-off payment that was going to be paid out over a number of years. Then Covid kicked in and Cowgill delayed taking the payment because at the time they had absolutely no idea on the cash flow of the business. 

“Now it’s being paid a year or so later, and you’ve now got people who are the advisors on these things saying, well, this doesn’t conform to best practice.”

The next AGM being faced with trepidation

Despite the Glass Lewis report, one financial advisor said Cowgill’s bonus would still be awarded. “There may well be some objections on July 1, but you can bet that Peter will still get his bonus when all is said and done”. 

Is there a single listed retail business out there now not looking at its next AGM with a growing sense of fear? 

The analyst says that larger businesses which have been listed for a long time will be in a better place to meet the growing shareholder checklists when it comes to ESG. 

“It’s different for a Marks & Spencer or a Kingfisher. They’ve been FTSE-100 companies for years and therefore are further ahead in terms of getting this kind of governance within their companies. 

Model wearing Boohoo clothes outside an aircraft

‘Shareholders will forgive you a lot if you deliver a good dividend, like Boohoo’

“Problems might come for some smaller businesses. When you’re smaller, you plough all your money into trying to grow, and you won’t invest in some of the sustainable, structural stuff until afterwards.”

She says retailers concerned about a potential shareholder revolt need to address issues like gender equality in senior positions, ensure they offer competitive staff policies and have a good handle on sustainability issues and the supply chain. 

For one source though, the best way for any listed business to avoid a shareholder revolt is ultimately still to deliver a profit.