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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is chair of AstraZeneca
The AGM season is in full swing, and with it comes the usual set of controversies around remuneration. AstraZeneca was among the first companies this year to receive votes from shareholders on a proposed policy that sets out the incentive structure for the next three years.
While I am thankful that a majority of shareholders supported our proposals, this could have been in jeopardy if more investors had followed recommendations from certain proxy agencies. Proxies often make inconsistent voting recommendations between markets: advising shareholders to vote against pay policies at FTSE-listed companies but supporting US and Swiss businesses that typically have higher compensation levels and a lower degree of performance-indexed pay. These double standards cannot easily be justified, and do serious harm to the competitiveness of global companies based in the UK.
Key shareholders tell us they stand behind our remuneration approach. They want our board to take the necessary steps to get the best global talent. We are a truly global company, headquartered in the UK with our major listing in London. However, our senior executives, top managers and scientists are based everywhere and are mobile worldwide. When we compete to retain those talents, and attract new ones, we have to align with our global competition, mainly those in the US, Switzerland and the EU. We do not compare ourselves with the top companies of the FTSE, the narrow approach taken by the proxy agencies, and one irrelevant to the decisions of our current and future employees.
We do this by ensuring the performance component of pay represents the overwhelming majority of total remuneration for senior management. The maximum pay, often the only one in the press, is the amount offered when all performance indicators (scientific, financial, sustainability and total shareholder returns) are exceeded. This led to tremendous value over the past decade.
Under our new policy, the guaranteed compensation of our CEO is only 9 per cent of the maximum pay, with 91 per cent at risk. Together with his team, he has created more than £140bn of additional value to shareholders during his period at the helm. This represents a substantial premium over the returns of big pharma US peers in the same timeframe. Yet his total target pay — even under the newly approved policy — is still on the lower end of the range in comparison to our US competitors.
Foreign companies typically use restrictive valuations of deferred compensation that lead to lower disclosed remuneration than if calculated using UK rules. This makes comparisons even more problematic and puts UK-based companies at a further disadvantage. The problem is not just at CEO level. We need the best scientists, the best doctors, the best commercial and operational talent to deliver industry-leading growth. Unlocking the pay-for-performance structure at the top is a powerful mechanism that ensures we have the best team possible. This is one of my board’s most important responsibilities towards shareholders.
Today the UK is the home of many successful global companies. These have invested billions in the country, creating thousands of jobs with global responsibilities. But if we are not able to compete internationally in the war for talent, this could change drastically and fast. Putting this at risk in the pursuit of historical principles will cause harm to Britain. It should not be considered.
As the chair of a company with deep roots in the UK, I am keen to see the country retain and attract successful global industry leaders so that UK-based global companies can continue to shine. Allowing British companies to be competitive in the international talent market is an important endeavour. It is vital for UK businesses to be able to compete fairly on a level playing field.