Shareholders of Glasgow-based engineering firm Weir Group on Thursday voted down the company’s proposals on directors’ pay packages.
Weir shareholders voted 72.4% against two resolutions on directors’ remuneration.
Fund managers Hermes had urged shareholders to vote against Weir’s proposal to award restricted shares to directors that were not tied to business performance targets — and most shareholders agreed with Hermes.
Weir said the firm will now continue to operate under the remuneration policy approved by shareholders in 2014, which runs until 2017.
The 72.4% of votes were cast at Weir’s annual general meeting against one resolution to approve the directors’ remuneration policy and against another to “approve amendments to the long term investment plan rules to take account of the proposed directors’ remuneration policy.”
After the vote, Weir Group chairman, Charles Berry, issued the following statement: “The group’s resolution on the directors’ remuneration policy did not gain sufficient support and will not now proceed.
“During an extensive consultation period, the board had tried to forge a consensus between different shareholder views.
“The group’s proposed policy would have offered senior management greater stability through the introduction of restricted stock awards in return for a substantial reduction in the maximum award available to the most senior executive director from 250% of salary to 165%.
“Restricted stock awards do not come with direct performance criteria but closely align senior management incentives with shareholder interests, as their value is dependent on share price performance, with the award taking five years to fully vest.
“In addition, the remuneration committee would have had the power to claw back restricted awards if necessary.
“The policy was designed to ensure fairness and consistency across senior management levels and followed extensive consultation with shareholders, who held a wide range of views.
“During those discussions there was broad acknowledgement of the issue facing many companies, including Weir, of how to effectively recruit, retain and incentivise senior management, across multiple territories, when market conditions beyond their control remain challenging for a sustained period.
“In Weir’s case, these market conditions have recently included a significant fall in commodity prices as a result of oversupply in mining and oil markets and a slowdown in global economic growth.
“Given the volatility in end markets, the group’s remuneration committee has highlighted the difficulty in setting meaningful financial performance targets over the three-year period required by the current long term incentive plan.
“While acknowledging the issue faced by the group, a majority of shareholders were clearly uncomfortable with a new approach which did not follow standard UK practice.
“However, as the interim report by the Investment Association’s Executive Remuneration Working Group recently suggested, standard practice in the UK may not be sufficiently flexible and companies should be allowed ‘to propose the remuneration structure that is in their judgement most appropriate’ including consideration of the introduction of restricted stock.
“The board looks forward to further engagement with shareholders regarding remuneration, as we jointly develop a revised policy for consideration in the future.
“We encourage all shareholders to actively participate in this process, as without this engagement their views can’t be reflected in developing proposals which are relevant for the group.
“In the meantime, Weir will continue to operate under the remuneration policy which was approved by shareholders in 2014 and which runs until 2017, with awards made tomorrow under these rules.”
Before the shareholder vote, Dr Hans-Christoph Hirt, Co-Head of Hermes EOS, wrote: “In the binding vote on the proposal to approve the remuneration policy, we are recommending to clients that they vote against, due to the proposed award of restricted shares which are not tied to performance targets.
“To focus on creating value over the long term, we believe that the company should have performance targets and apply the test of common sense if these prove to be unrealistic due to unanticipated market conditions.”