AGM alert: Rolls-Royce, Shell, L&G, Glencore

The rewards for continuing the recent success of Rolls-Royce Holdings (LSE:RR.) are set to see a big increase after the engines giant revealed a new remuneration policy ahead of this month’s AGM.

Rolls is replacing its pandemic-era pay approach with a more conventional scheme, a change that will increase the chief executive’s maximum incentive opportunity to 575% of salary from 385% under the previous policy.

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For 2023, Tufan Erginbilgic got £4.7 million in deferred shares after the company’s forecast-beating performance and 221% share price surge led to the incentive scheme awarding 97% of the maximum opportunity.

Other companies holding AGMs this month include Glencore (LSE:GLEN), which has unveiled a simplified pay structure for its chief executive comprising only his salary and long-term incentives that are subject to deferral throughout and beyond his career with the miner.

The approaches of Glencore and Shell (LSE:SHEL) to reducing their carbon emissions will also be subject to AGM scrutiny through advisory votes on their climate action plans.

Shell

When: 10am, Tuesday 21 May.

Where: InterContinental London – The O2, Greenwich Peninsula, London SE10 0TW.

How to participate: This will be a hybrid meeting, with shareholders able to virtually attend via the Lumi electronic meeting platform. Voting instructions sent in advance must reach the company’s registrar no later than 10am, Friday 17 May. More AGM details can be found here.

Who’s in the chair? Former BHP chief executiveAndrew Mackenzie was appointed in May 2021.

How did the company do in 2023? Adjusted earnings of $28.2 billion (£22.6 billion) fell from $39.9 billion the year before, mainly due to oil and gas prices. Lower volumes and refining margins were offset by higher LNG trading and margins. Annual cash flow from operations of $54.2 billion was also lower but still the second highest in Shell’s history. The company returned $23 billion to shareholders through $15 billion in share buybacks and $8 billion in dividends, including the fourth-quarter distribution of $0.344 on 25 March. At 42% of Shell’s cash flow from operations, the total returned compared with the target range of 30-40% through the cycle.

How have shares performed? Up 11% to 2,571.5p in 2023 (2,873p on Thursday).

How much is the boss paid? The base salary of Wael Sawan, who was appointed at the start of 2023, has increased for this year by 3.9% to £1.45 million. His total remuneration for last year amounted to £7.9 million, which included cash and shares worth £2.7 million based on 77.5% of the maximum opportunity. Awards under the 2021 long-term incentive scheme, which related to the period before Sawan became an executive director, contributed £2.6 million after they vested at 47% of the maximum.

How was the variable pay outcome assessed? Shell has a long-standing policy of not adjusting remuneration measures to take account of changes in energy prices and currency fluctuations, which it says supports alignment between pay outcomes and the shareholder experience. Financial performance accounted for 35% of the bonus award, with the delivery of $54.2 billion in cash flow from operations (CFFO) better than the “outstanding” threshold of $54 billion and so leading to a maximum outcome. Operational excellence, which accounts for another 35% across the scores of asset management, project delivery and customer satisfaction, saw an above target result.

Shell’s performance on the 15% of the bonus relating to the energy transition journey was above target. The remainder of the bonus relating to safety was at maximum. Shell’s three-year benchmarking against the other energy majors of BP, Chevron, ExxonMobil and TotalEnergies resulted in no vesting under the longer-term performance measures of CFFO and return on capital employed. However, there was maximum vesting on absolute free cash flow.

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How did last year’s AGM go? The new three-year remuneration policy was approved with 94.60% of votes in favour, while the annual remuneration report got 94.67% support.

What about climate-related votes? At last year’s AGM, 80.01% of Shell’s shareholders backed progress under the company’s energy transition strategy. Shell has published a further report on its work in 2023 to become a net-zero emissions business by 2050. This is subject to another advisory vote at this year’s AGM. A separate resolution has been filed by 27 leading investors in conjunction with green shareholder group Follow This. It urges Shell to align its medium-term carbon reduction targets with the Paris Climate Agreement, including emissions from fuels burnt by its consumers. A similar resolution at last year’s AGM attracted 20% support.

How have Shell’s targets changed? It is now targeting a 15-20% reduction by 2030 in the net carbon intensity of the energy products it sells, compared with 2016, against a previous target of a 20% reduction. Acknowledging uncertainty in the pace of change in the energy transition, it has retired its 2035 target of a 45% reduction in net carbon intensity. The company points out it invested $5.6 billion (£4.5 billion) in low-carbon solutions in 2023, which was 23% of its capital spending. Shell is also investing $10-15 billion in low-carbon energy solutions between 2023 and the end of 2025, making the company a significant investor in the energy transition.

What about the special resolution? Follow This believes the company is betting on the failure of the Paris Climate Agreement which requires almost halving emissions this decade. Founder Mark van Baal said: “Only Shell’s shareholders can change the board’s mind by voting for our climate resolution at the shareholders’ meeting.”

What’s the company’s response? It warns the resolution, if approved, would have a material negative financial impact on the company and its ambition to be the investment case through the energy transition. It added: “Shell has targets and ambitions that it believes are in line with the more ambitious goal of the Paris Agreement to limit global warming this century to 1.5°C above pre-industrial levels and it is making good progress towards achieving these targets and ambitions.”

How’s the company doing on diversity? Women held 42% of board roles at the end of 2023, including one senior position. There were three directors from an ethnic minority group.

Rolls-Royce

When: 11am, Thursday 23 May.

Where: Rolls-Royce Learning and Development Centre, Wilmore Road, Derby, DE24 9BD.

How to participate: Those joining virtually will be able to log into a live webcast, pose questions to the board in real time and vote on the business of the meeting. Proxy voting instructions should be returned by 11am, Tuesday 21 May. More AGM details can be found here.

Who’s in the chair? Anita Frew, who has two decades of board experience in industrial manufacturing and financial services companies, has held the role since October 2021.

How did the company do in 2023? The civil aerospace, defence and power systems business generated revenues of £15.4 billion, up from 2022’s £12.7 billion. Free cash flow lifted to £1.28 billion from £505 million the year before and underlying profit to £1.26 billion from 2022’s £206 million, Earnings per share jumped to 13.75p from 1.95p and net debt reduced to £1.95 billion from £3.25 billion. There was no dividend payment.

How have shares performed? Up 221% to 299.7p (406.5p on Thursday).

How much is the boss paid? The base salary of Tufan Erginbilgic (pictured above) increased in March by 4.5% to £1.31 million. His total remuneration for 2023 included £4.68 million from the company’s incentive plan, based on 97% of the maximum opportunity. The award is deferred into shares, 40% for three years and the rest for four years. As part of the performance metrics accounting for 80% of the award, free cash flow of £1.28 billion and underlying operating profit of £1.6 billion were significantly ahead of the original target and the maximum threshold. Two grants of shares valued at £7.5 million were made to Erginbilgic in order to compensate for remuneration forfeited from his previous employment in private equity. The vesting period applied to the awards is 50% after four years and the rest after five years, which Rolls said ensured long-term alignment with the interests of shareholders.

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How is remuneration policy changing? In 2021, Rolls introduced an incentive plan that was primarily focused around in-year annual targets with some long-term targets included for 2022 and 2023. This was in order to drive restructuring and to deal with the challenges of setting long-term targets during the pandemic. Given the group’s return to more normal trading conditions it believes it is appropriate to return to a more conventional remuneration structure. This includes a separate annual bonus with mandatory deferral, plus a market-standard share plan with a three-year performance period plus two year holding period. Performance measures in both the annual bonus and the long-term incentive plan place emphasis on cash flow and profit, reinforcing the group’s ambition to return to investment grade, which in turn will enable Rolls to make “appropriate portfolio choices” and reintroduce shareholder payments.

What’s the impact on pay levels? The maximum incentive opportunity when the annual bonus and long-term incentive plans are combined will be 575% of salary for the chief executive, up from 385% under the previous policy. The remuneration report said: “This is a significant increase in quantum when compared to the previous policy, but the committee is comfortable that, given the peer group review and the significant change in the internal and external landscape since 2021, that the maximum opportunity is proportionate and fair.” 

How did last year’s AGM go? The annual remuneration report was backed with 88.17% of votes in favour.

How’s the company doing on diversity? The board has achieved gender parity, with two women in senior roles. One board member is from a non-white ethnic minority background.

Legal & General

When: 11am, Thursday 23 May.

Where: The British Medical Association, Tavistock Square, Bloomsbury, London WC1H 9JZ.

How to participate: Additional facilities will be available for Legal & General Group (LSE:LGEN) shareholders to join and vote electronically. Voting instructions should be returned by 11am, Tuesday 21 May. More AGM details can be found here.

Who’s in the chair? John Kingman, who was appointed in October 2016, played a leading role in the Treasury’s response to the financial crisis.

How did the company do in 2023? Operating profit of £1.7 billion was unchanged, alongside 9% growth in L&G’s store of future profit to £14.7 billion. Earnings per share fell 43% to 7.35p. A final dividend of 14.63p is due to be paid on 6 June, consistent with the company’s ambition to grow the dividend by 5% up to 2024.

How have shares performed? Up 1% to 251.1p (235.8p on Thursday).

How much is the new boss paid? António Simões has been recruited on a base salary of £1.17 million, which is between the median and upper quartile for FTSE 100 financial services companies. His maximum opportunity under this year’s annual bonus scheme is 200% of salary, while he has been granted long-term incentives with a face value of 300% of salary.

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What about the former boss? Nigel Wilson joined Legal & General as chief financial officer when shares were 20p in 2009 and became chief executive in 2012. He got a total of £3.22 million in his final year at the company, compared with his highest figure of the past decade of £5.5 million in 2015. The 2023 remuneration figure included an annual bonus of £867,000 based on 53.8% of the maximum opportunity. The 61.1% vesting of long-term incentives contributed £1.1 million to the final figure. He held nearly four million shares at the end of 2023, with his outstanding share awards due be treated in line with good leaver provisions.

How did last year’s AGM go? The broadly unchanged three-year remuneration policy got 95.46% support, while the annual remuneration report was backed with 95.71% of votes.

How’s the company doing on diversity? Women accounted for 42% of board roles at the end of 2023, including one senior position. A quarter of the board was from an ethnically diverse background. 

Glencore

When: 12pm (Central European Summer Time), Wednesday 29 May.

Where: Theater-Casino Zug, Artherstrasse 2-4, Zug, Switzerland.

How to participate: Proxy voting instructions should be returned no later than 12pm (Central European Summer Time), Friday 24 May. More AGM details can be found here.

Who’s in the chair? Kalidas Madhavpeddi was appointed in February 2020. He has over 40 years of mining industry experience, including as CEO of the operating subsidiary of China Moly.

How did the company do in 2023? Group underlying earnings of $17.1 billion (£13.7 billion) declined 50% as markets normalised after 2022’s extreme disruption. Marketing earnings of $3.5 billion were above the $2.2-$3.2 billion long-term guidance range, but 46% below the previous year. Industrial earnings declined 52% to $13.2 billion impacted primarily by lower pricing, particularly in energy coal, as well as inflationary costs.  Cash returns to shareholders of $10.1 billion comprised $6.5 billion of base and special distributions and $3.6 billion of buybacks, up from 2022’s total of $7.5 billion. A base distribution of $0.13 a share will be paid in two instalments in June and September. Year-end net debt of $4.9 billion and the $6.9 billion purchase of steelmaking coal business Elk Valley means “top-up” returns are not expected.

How have shares performed? Down 14% to 472.1p (458.7p on Thursday).

How much is the boss paid? Gary Nagle, who was appointed in 2021 and is the company’s only executive director, got total remuneration of $5.8 million (£4.6 million) in 2023. This included cash and deferred shares worth $3.84 million (£3.1 million) based on 82.9% of the annual bonus opportunity. The scorecard comprised 55% financial measures, 30% on safety and climate and 15% personal strategic objectives. No long-term incentive shares awards were due to vest.

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What’s in the new remuneration policy? The remuneration committee led by Martin Gilbert is proposing a simplified structure comprising only salary and long-term incentives. The proposal includes the use of Career Shares, which incorporate a performance framework alongside a requirement for full share deferral throughout and beyond the CEO’s career. Gilbert said: “Providing share ownership and requiring long-term ownership of these shares is not only important to align executive interests and personal accountability for performance over the long term, but also helps to retain the best talent in the industry.”

What are the details? Salary will be the only form of cash remuneration earned by the CEO each year. In light of the proposed removal of the annual bonus and to partly offset the reduction in cash compensation, Nagle’s salary will increase 7.9% this year to $2 million. The target Career Shares opportunity will be 350% of salary, which remains unchanged compared to the current policy’s combined incentive target (an annual bonus target of 125% and restricted shares at 225%). The maximum incentive opportunity for the chief executive will be 525% of salary, resulting in a cap on remuneration of about $12.5 million The first award will be made in 2025 based on performance assessed during this year.

How did last year’s AGM go? The annual remuneration report was approved with 95.72% of votes in favour. 

Is there a climate-related vote? At the 2023 AGM, 30.25% of votes were cast against the advisory resolution on the company's climate progress report as investors sought clarity on how Glencore will meet its commitments to cut emissions. Around 29% of votes also backed a shareholder resolution calling for more disclosure on progress in scaling back thermal coal production. The company’s second Climate Action Transition Plan for 2024-2026 will be presented at this year’s meeting. It retains existing emissions reduction targets, of 15% and 50% by the end of 2026 and 2035 respectively, and the 2050 ambition of achieving net zero industrial CO2 emissions. The company also introduces a new interim target of a 25% reduction in CO2 emissions for industrial assets by the end of 2030. The new plan does not include the proposed acquisition of a 77% interest in steelmaking coal business Elk Valley Resources.

How’s the company doing on diversity? With three female directors, board composition misses the 40% recommendation of the FTSE 100 Women Leaders Review by 2.5 percentage points. One is in a senior role, while one director is from a minority ethnic background.