Paying The Price: SABMiller plc And Talktalk Telecom Group PLC

Two companies facing pay critics had different responses from shareholders at annual general meetings (AGMs) on Wednesday: the key to the difference? Performance.

SABMiller’s (LSE: SAB) had a difficult two years. Its chairman died while in post and the share price fell from a high of 3,599p in May last year to around 2,739p in February this year. It has recovered somewhat, trading at around 3,350p today. That volatility might have been enough to set shareholders on edge and lead them to vote in numbers against the company’s pay practices… but it wasn’t pay levels.

Last year, SABMiller received the support of 95% of its shareholders for its remuneration report. And this year, despite being promoted to the chief executive position during the 2014 fiscal year, Alan Clark’s total remuneration actually fell by 3.5%, and he earned roughly half what his predecessor, Graham Mackay, did in 2013.

So, not pay levels then, but pay policy. Shareholder advisory group Pirc (Pensions & Investment Research Consultants) was the prime critic of pay at SABMiller in the weeks running up to the AGM. It stated that maximum incentives were excessive (they are 925% of base salary for Clark). Also, the experience of employees, whose bonuses went down 3%, was significantly different from Clark’s, whose bonus went up 126% (though the promotion played a part).

Pirc also criticised the lack of non-financial measures of long-term performance. SABMiller uses EPS and total stockholder return for its shares and share option awards, only applying so-called sustainability measures: water usage, fossil fuel emissions, health & safety to the annual bonus. In fact, the remuneration report says: “a significant proportion of the annual bonus opportunity [is] based on longer term and sustainability metrics.” One wonders, then why the long-term bonus isn’t based on those as well.

Votes from Wednesday’s AGM show that the company’s pay policy failed to receive the support of 21% of shareholders, though most of these abstained rather than actually voted against management. In this case, falling revenues and free cash flow failed to protect management from shareholder discontent.

TalkTalk Telecom Group’s (LSE: TALK) stock price fell too during 2013, from 272p in March to 217p in May, but, despite a fallback in May this year, it now stands at 320p, so shareholders can’t be complaining about that. Except that few, if any of their peers — such as BT, ITV and AdEPT — experienced that fall last year and have therefore outperformed the group.

Again Pirc is one of the main critics of pay at the company, this time calling it excessive. Chief executive Dido Harding received 12.6x base salary as incentives in fiscal 2014, bringing total pay to over £6.8 million. Comparisons with the rest of the executive team – none of whom were there for the whole fiscal year – are not relevant. Many of the major performance targets were missed during the year – EBITDA, free cash flow – though sustainability targets were met. Nevertheless, a bonus of £320,000 might seem excessive for a company whose EBITDA fell by 37%. On the other hand, revenues – another metric used for the annual bonus – have been growing for the last six quarters. This news, and possibly news of an expanded deal with Sky, allowing customers to watch Sky Sports, that was announced on Wednesday’s AGM, seemed to be enough to limit shareholder dissatisfaction with pay. Only 7.5% of shareholders voted against or withheld votes from the company’s remuneration policy, and fewer still failed to approve the remuneration report.

For TalkTalk, performance was enough to stave off a major protest vote about high pay.