The asset management giant’s newly released investment stewardship report for the second quarter has details around an unnamed Australian wealth, banking and insurance group, which held its annual meeting in May and only secured supporting votes for its compensation report from 32 per cent of shareholders.
A culprit that lines up with all of these attributes is AMP, which saw shareholders launch their first strike against the group’s board at its AGM as the majority protested its proposed executive pay.
After a $2.5 billion loss in 2019, AMP’s board had felt the ire of shareholders when it decided to scrap the yearly dividend and raise the maximum short-term incentive for chief executive Francesco De Ferrari to 200 per cent of his fixed base salary, from its previous maximum of 120 per cent.
BlackRock proxy voting disclosure confirmed it had voted against approving the remuneration report, with a note saying AMP’s incentive arrangements were “poorly structured”.
The US asset manager however declined to confirm or comment on who the unnamed case study was.
In the stewardship review, BlackRock stated its decision to vote against the Australian group’s compensation report centred on the recent changes to its structure, which it determined to be “not in alignment with shareholder interests”.
BlackRock said it is also anticipating future engagements with the company’s board on improving its remuneration structure and other governance matters.
The unnamed group had reportedly refreshed its executive incentive structures in 2019 to support a new corporate strategy which would be achieved through financial outcomes linked to key priorities.
“The company believes this affords the board flexibility to react to rapidly shifting strategic priorities,” the BlackRock stewardship report stated.
“In our view, this new structure deviates from market best practices and was not clearly explained. Specifically, it was difficult to understand exactly what strategic company objectives needed to be met and whether the goals are sufficiently challenging for key management personnel to receive their incentive payouts.”
Further, BlackRock deemed aspects of the long-term incentives “problematic” – including rights to shares vesting within three years.
“Our main concern is that theses awards could commence vesting below the index return (e.g. 25 per cent of the awards vests if the company’s performance is at the 75 per cent mark of the benchmark index return),” BlackRock stated.
“We determined that this threshold represents too low a hurdle to grant even one-quarter of the payout, and thus was not well aligned with shareholder interests.”
AMP is set to release its interim results on Thursday. It has indicated that due to COVID-19, it is expecting its half-year profit to halve year-on-year.
The results will follow a recent wave of executive changes at the group – including the resignation of AMP Australia chief Alex Wade.
Last week, Lazard Asset Management ceased to be a substantial holder in AMP, selling more than 17 million shares in the group. The change was filed to the ASX last Monday.
According to its stewardship report, BlackRock voted against one or more management recommendations at 45 per cent of the shareholder meetings it attended in the APAC region during the second quarter and 43 per cent worldwide.
The asset manager’s engagements with companies had increased by more than a fifth year-on-year, with it being focused on social themes. Discussions on human capital management were said to have increased threefold year-on-year.
