Investors warning to directors

Investors have given company directors another warning over poor remuneration practices.

Eleven of the top 200 companies recorded a first strike during this year’s annual shareholder meeting season, after more than 25% of shares were voted against their remuneration reports. Companies outside the top 200 fared worse, with 15 recording their second strikes so far this year.

But company directors and their advisers say the two strikes rule is being misused by shareholders. Institute of Company Directors spokesman Steve Burrell says the legislation is being abused by shareholders with ulterior motives. “It is being used as a protest vote about issues entirely unrelated to executive pay,” he told the Australian Financial Review.

A 40% protest vote against David Jones (ASX: DJS) has been linked to share trading by two non-executive directors and the shock decision of CEO Paul Zahra to resign, rather than anything to do with the remuneration report.

Cynical shareholders may well say that a protest vote against the remuneration report for issues unrelated to pay is payback for directors and CEOs abusing their powers in the past, with ordinary shareholders having no avenue of complaining back then. Shareholders have had enough of company executives not aligning their interests with them, feeling that if they have had a tough year, so should the stewards of their company. Unreasonable bonuses, excessive pay packages, or low hurdles being set to achieve large increases in remuneration all attract the ire of shareholders.

Companies in the top 200 that saw protest votes against them include Alumina (ASX: AWC), Karoon Gas (ASX: KAR), Cabcharge (ASX: CAB), SCA Property Group (ASX: SCP), Forge Group (ASX: FGE), David Jones, Automotive Holdings (ASX: AHE), Southern Cross Media (ASX: SXL), Aurizon (ASX: AZJ) ex-QR National, and Super Retail Group (ASX: SUL).

Foolish takeaway

Governance experts suggest that the results reflect that the top 200 companies are doing a better job of listening to their shareholders, and stamping out shareholder-unfriendly practices. But investors should be wary of companies that attract protest votes. That could be a sign that the board and executives care little about their shareholders.

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Motley Fool writer/analyst Mike King owns shares in Forge Group. You can follow Mike on Twitter @TMFKinga

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