WTW has recently carried out a series of interviews with a significant number of institutional investors and proxy agencies across Europe, on their views ahead of the coming 2025 AGM season.
Our recent series of interviews with investors has revealed a diverse range of perspectives, highlighting the importance of nuanced shareholder engagement. It's worth noting that investors do not speak with a single voice, and understanding their varied viewpoints is critical for effective decision making.
Engagement and disclosure
One of the main themes from this year's outreach is the increased level of earlier engagement from companies regarding pay issues, which has been well-received by investors.
There is a growing openness among investors toward remuneration policies that deviate slightly from the traditional and largely uniform models of European companies.
Investors noted that there remain varying levels of disclosure across Europe but acknowledged that there has been a generally positive trend. Investors emphasized that high-quality disclosure is critical for investor support - in particular, they highlighted the need for companies to disclose the full details of incentive targets (on a forward-looking basis where possible), the rationale for any use of discretion and a preference for Remuneration Committees to clearly explain their thought process as well as the factual outcomes of remuneration decisions. Investors noted that they value clarity and simplicity in disclosure rather than overwhelming amounts of detail.
International competitiveness
A notable theme of the 2024 AGM season (especially in the U.K.)
was the ongoing debate about pay competitiveness for companies with
talent markets including global/U.S. peers. Investors expect this
topic to remain significant in 2025, increasingly for companies in
Continental Europe.
Investors interviewed did show sympathy for companies on this
topic. They were open to hearing proposals (on levels or reward
structures) where a strong case, backed by evidence, can be put
forward that it's necessary and appropriate in the
company's specific circumstances. In such cases, investors
stated that it was vital for companies to explain the business
impact being addressed and what comparator group is being used to
inform decision making.
However, a few investors expressed some nervousness about "opening the floodgates" for companies, now that several companies have received positive votes in this context, and emphasised that each company will need to put forward a strong case specific to their own circumstances to gain shareholder support. Some investors noted that there will continue to be a degree of difference in remuneration arrangements depending on the local market as there isn't a single global talent market.
Environmental, social and governance (ESG) metrics
The incorporation of environmental, social, and governance (ESG) metrics in executive incentive arrangements is perhaps one of the areas where there is the widest range of views expressed by investors – ranging from it being critical for ESG metrics to be included to more neutral open-mindedness for companies to make the case for why they are appropriate. However, none of the investors spoke to were specifically against the inclusion of ESG metrics.
There is a consensus that ESG metrics must be clearly aligned with company strategy, disclosed in detail and use challenging targets. Increasing disclosure of ESG metrics is expected to lead to greater scrutiny in this area. Most investors are open-minded about whether ESG metrics are part of short- or long-term incentives, provided the company clearly explained its thought process and alignment to strategy.
Looking forward
As we approach the 2025 AGM season, most investors do not anticipate significant changes to their voting guidelines or approach. However, it's evident that there is a growing openness among investors toward remuneration policies that deviate slightly from the traditional and largely uniform models of European companies, though the fundamentals of transparent disclosure and a compelling rationale for any proposals remain vital for gaining shareholder support. As always, engaging thoughtfully with your specific shareholder base continues to be a critical part of the decision-making process for remuneration committees.
We'll be monitoring outcomes as we move into the forthcoming AGM season to understand the direction of travel on topical voting issues and will provide updates in due course.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
