Glencore is facing the threat of investor dissent after an influential proxy adviser urged shareholders to reject new chief executive Gary Nagle’s incentive scheme and abstain from a climate change resolution.
Glass Lewis called on investors to oppose the miner and commodity trader’s pay policy and its plans to introduce a restricted share plan, a type of long-term scheme that pays out a set amount of shares, at the group’s annual meeting this month.
In a report for clients it cited reservations “regarding the maximum opportunity available under the plan when considered in the context of the newly appointed CEO’s base salary level and annual bonus opportunity” as the reason for its recommendation.
Glencore has only had three CEOs since it was founded in 1974 and Nagle will be the first subject to a conventional pay arrangement, with the bulk of his remuneration coming from short and long-term incentive schemes.
Ivan Glasenberg, who has run the FTSE 100 company since 2002, was only paid a basic salary of $1.5m. Because of his large stake in the company he waived any salary increase and participation in bonus and incentive schemes. As a result, new arrangements had to be put in place by its remuneration committee.
Nagle, who at present runs Glencore’s huge coal business and will replace Glasenberg at the end of June, could be paid up to $10.4m a year although the maximum he will actually receive in any one year will be $6.4m since 40 per cent of his bonuses will be held back until two years post employment.
“We consider a base salary of $1.8m in conjunction with a short-term incentive opportunity of 250 per cent of salary and an RSP opportunity of 225 per cent of salary, to be excessive for a newly appointed CEO with no previous experience of running a publicly listed company,” Glass Lewis said.
One top 30 shareholder said he had concerns about the potential size of the pay package, although he had not yet voted. “In principle, adopting a restricted share plan makes sense — however, quantum is too high.”
The Investment Association, the trade body whose members oversee £8.5tn of assets, is understood to have issued a red top - the highest level of warning given by its Ivis voting service - over Glencore’s pay policy.
ISS, another big proxy adviser, also urged shareholders to reject Glencore’s remuneration policy and its restricted share plan. It said the proposed pay package for Nagle was “high relative to peers” and the share plan was not subject to “conventional performance conditions.”
Glencore declined to comment. However, in its annual report it said Nagle’s remuneration was not excessive and was aligned with shareholder interests. The company believes the two year post-employment holding period of its new share plan is unique in the FTSE 100.
At the AGM on April 29 Glencore is also seeking shareholder approval of its climate strategy. The company announced new targets in December that will make it the first miner to be fully aligned with the goals of the Paris agreement on climate change.
By 2050 the company, the world’s biggest exporter of thermal coal, is aiming to be carbon neutral — including the carbon dioxide generated when customers burn or process its raw materials.
While supportive of “comprehensive reporting” on climate strategies, Glass Lewis said it was not in the best interests of shareholders to support the climate resolution at the AGM.
“This proposal . . . would essentially allow the board to delegate its oversight responsibilities for the setting of corporate strategy to shareholders by allowing them to effectively dictate this strategy through an up/down vote.”
Hedge fund billionaire Chris Hohn, who has popularised the concept of “say on climate” votes at AGMs, said the recommendation from Glass Lewis was absurd.
“The say on climate AGM vote does not usurp the position of the board in running a company as a matter of law because it is purely advisory in the same way that the say on pay AGM vote is also advisory,” he told the Financial Times.
“It is an absurd position that Glass Lewis is adopting that a say on climate is not to be supported but a say on pay is to be supported. Glass Lewis need to be logically consistent and either support both or reject both.”