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Smith & Nephew had a shareholder revolt on Wednesday when almost half of voting investors rejected the medical device maker’s plans to boost its chief executive’s pay package to $11.8m (£9.5m) .
But the company’s pay policy, which will increase the maximum payout for Deepak Nath – who is based in Texas – by nearly a third, was narrowly approved despite 43% of votes cast against the proposals at the annual general meeting in Watford.
The company is among a growing number of companies who are arguing for an increase in CEO pay to match that of the US. The Smith & Nephew Chair, Rupert Soames, who is also chairman of the business lobby group CBIsaid that the share of revenue that a company makes abroad must be taken into account, meaning it should not be compared with UK-listed competitors.
Smith & Nephew now promises to hold discussions with aggrieved shareholders in the coming months in the hope of easing tensions over pay demands.
“The board is grateful for the engagement of shareholders and representative agencies in our extensive consultation ahead of the AGM and is pleased that all resolutions were passed at today’s AGM,” the company said in a statement on Wednesday.
“We will continue to engage with shareholders and proxies and will provide an update on further consultations within six months of today’s AGM in accordance with the UK corporate governance code.”
Under the pay proposal passed Wednesday, the CEO’s pay would reach $11.8 million next year if all targets are met, which would be a 29 percent increase from his current maximum package of $9.2 million.
Luke Hildyard, director of the High Pay Center think tank, said: “Arguments for increasing CEO pay on this scale suggest a rather depressing view of how wealth is created – namely that it all comes down to superstar CEOs and there is a fixed amount of them, necessitating a bidding war for recruitment and escalating top pay. We should be a little more skeptical of some of these claims.
The uproar follows a damning report by proxy adviser Institutional Shareholder Services (ISS), which called the policy “excessive” and said shareholders should reject the pay proposals. ISS said it had “significant concerns” about the size of the increase and the structure of the new policy, as it gives US-based executives more shares in the company regardless of their performance.
However, Glass Lewis, another proxy adviser, supported the remuneration deal, saying there was a “compelling case” for increasing pay for US-based executives.
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The riot lasted only weeks following a shareholder revolt at AstraZeneca’s annual meeting in April, when 35.5% rejected the company’s remuneration policy, which included a maximum pay package of £18.7m for the pharmaceutical company’s chief executive Pascal Soriot.
Hildiard said: “When companies succeed, it is because of the efforts of the workforce as a whole, not to mention the wider socio-economic context. People who reach executive positions do so largely because they have been imbued with the education, networks, and confidence that other people lack. It follows that firms should invest a little more in their broader workforce rather than splash such disproportionate resources on individual executives.
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