Big day arriving fast for Rolls-Royce, its new CEO and angry shareholders

Just a few months after the iconic engineer welcomed a new boss, shareholders are being urged to vote against his pay deal. We explain why, and also look at three other companies ahead of big investor meetings.

The recruitment package used by Rolls-Royce Holdings (LSE:RR.) in hiring new chief executive Tufan Erginbilgic will be under scrutiny when the engines giant holds its AGM in the coming days.

His base salary of £1.25 million is much higher than the sum handed to predecessor Warren East, while the former BP executive also gets £7.5 million of shares to compensate for remuneration forfeited at his previous employer.

Advisory firm Glass Lewis has recommended shareholders vote against the company’s remuneration report amid concerns over the size and lack of performance conditions attached to Erginbilgic’s recruitment awards.

• Invest with ii: Open a Stocks & Shares ISA | ISA Investment Ideas | Transfer a Stocks & Shares ISA

Other AGMs will see shareholders vote on the £4.1 million pay deal handed to Balfour Beatty boss Leo Quinn as reward for his company’s strong performance in the FTSE 250 index.

Rolls-Royce

When: 11am, Thursday 11 May.

Where: Aztec Hotel, Aztec West, Almondsbury, Bristol, BS32 4TS.

How to participate: A live webcast will enable shareholders to pose questions to the board in real time and vote on the business of the meeting. Votes in advance of the meeting should be submitted by 11am, Tuesday 9 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 2022? Underlying revenues of £12.7 billion were 14% higher, with stronger margins in civil aerospace leading to an improved operating profit of £652 million. Net debt of £3.3 billion fell from the previous year’s £5.2 billion due to disposals and a £2 billion improvement in cash flow. The broadly unchanged statutory loss of £1.5 billion included fair value losses on derivative contracts, resulting in a loss per share of 14.24p.

How have shares performed? Down 26% to 93.2p (152p on Thursday).

How much is the boss paid? Tufan Erginbilgic, who started as chief executive in January, receives a base salary of £1.25 million with 30% deferred into shares for two years. He has been granted £7.5 million of Rolls-Royce shares to compensate for remuneration forfeited from his previous employment at Global Infrastructure Partners. Half of the award will vest in March 2027 and the rest a year later, subject to his continued employment. The maximum opportunity under the company’s incentive plan will be 385% of salary delivered in shares.

What was his predecessor paid? Warren East, who was appointed in July 2015, received total remuneration of £3.8 million in his final year in charge. That was similar to the previous year as the annual bonus scheme paid 74% of the maximum opportunity worth £2.74 million. The outturn, which was benchmarked against key turnaround targets such as cash flow, cost base control and reduction of net debt, will be paid in deferred shares — 40% for three years and 60% for four years. Long-term incentives granted in 2020 did not vest.

Why the big increase in the CEO’s base salary? Warren East’s final base salary stood at £967,088 as the circumstances of his tenure resulted in only one pay increase since 2017. The remuneration committee said this meant the chief executive’s salary had not kept up with market trends. It added: “Tufan’s base salary is at the upper quartile when benchmarked against other chief executives in the FTSE 100, reflecting his background in private equity and his proven track record for leadership and delivery in complex global industrial organisations.”

What’s the view of voting agencies? Glass Lewis is concerned by the £7.5 million of recruitment awards given to the new chief executive to compensate him for remuneration lost at his previous employer. It highlights the lack of performance conditions, adding that shareholders may reasonably have expected greater disclosure on the methodology used in determining the size of the replacement awards. The agency recommends shareholders vote against the annual remuneration report.

How did last year’s AGM go? The annual remuneration report was backed with 94.28% of votes in favour.

How’s the company doing on diversity? The gender diversity of the board following the AGM will be more than 40% female. The company’s longer-term ambition is to reach gender parity. At least one board member is from a non-white ethnic minority background.

Rentokil Initial

When: 3pm, Wednesday 10 May.

Where: Compass House, Manor Royal, Crawley, West Sussex RH10 9PY.

How to participate: A live webcast will enable Rentokil Initial (LSE:RTO) shareholders to ask questions and vote electronically during the AGM. The deadline for submitting votes or questions in advance of the meeting is 3pm, Friday 5 May. More AGM details can be found here.

Who’s in the chair? Richard Solomons, the former chief executive of InterContinental Hotels, has been in the role since May 2019.

How did the company do in 2022? Revenues rose 25.6% to £3.7 billion, reflecting M&A activity including October’s addition of US-based Terminix and strong organic growth of 6.6%. Adjusted operating profit rose by 22.7% to £542 million, although one-off items and increased interest costs relating to the Terminix transaction meant statutory profits fell 9.1% to £296 million. Adjusted earnings per share rose 18% to 21.22p. The payment of a final dividend of 5.15p a share on 17 May increases the total for the year by 18.2% to 7.55p.

How have shares performed? Down 12% to 508p (617.6p on Thursday).

How much is the boss paid? The salary of Andy Ransom, who has been chief executive since 2013, is due to rise by 3% in July to £928,300. His total remuneration for 2022 came to £3.53 million, compared with £5.5 million the previous year. The final figure included a near maximum £1.6 million annual bonus, with 40% of this paid in deferred shares. The award was calculated on results excluding Terminix. The 37.25% vesting of long-term incentive shares awarded in September 2020 contributed £831,900 to the final figure, whereas the previous year’s vesting rate was 96.6% worth £2.88 million.

How did last year’s AGM go? The annual remuneration report was backed with 93.97% of votes in favour.

What’s the view of voting agencies? Glass Lewis recommends shareholders vote in favour of the annual remuneration report.

How’s the company doing on diversity? The gender profile of the board is 33% female. Women account for 29% of senior management roles and 23% of the total workforce. There are two ethnic minority board members.

Harbour Energy

When: 10am, Wednesday 10 May.

Where: 11 Cavendish Square, London, W1G 0AN.

How to participate: Answers to key questions raised in advance of the meeting will appear on the Harbour Energy (LSE:HBR)’s website from today (Friday), ahead of a voting deadline of 10am, Friday 5 May. More AGM details can be found here. 

Who’s in the chair? Blair Thomas has more than 30 years’ experience in investment management, with a focus on energy and energy-related infrastructure.

How did the company do in 2022? A 19% increase in production and significantly higher oil and gas prices helped pre-tax profits to $2.5 billion (£2 billion) from £300 million the year before. A $1.5 billion one-off hit associated with the UK’s Energy Profits Levy contributed to an after tax profits figure of $8 million. Free cash flow rose to $2.1 billion and net debt reduced to £800 million. A final dividend of 12 cents a share is due to be paid on 24 May, bringing the total announced shareholder returns to $1 billion since December 2021.

How have shares performed? Down 15% to 304.4p (240.4p on Thursday).

How much is the boss paid? Linda Cook’s £850,000 base salary is to stay the same after she declined a 4% pay rise from April. The company said: “In light of the introduction of the UK Energy Profits Levy during the year and its material impact on the future profitability and the value of the company, alongside there being no increase in fees put forward for the chair and non-executive directors, the CEO elected to forego her increase in salary for 2023.” Her total remuneration for 2022 amounted to £3.1 million, including a bonus of £1.27 million based on 75% of the maximum opportunity. She also received £740,270 of tax equalisation payments to ensure she does not pay more tax in the UK than she would do in the US.

Why was discretion used in setting the annual bonus? Most safety targets were met, but the company did experience an increase in high potential incidents in the first nine months of the year. While performance improved in the fourth quarter, the decision was taken to reduce the payout to the 65 most senior leaders in the company from 153% to 150% of salary in order to reinforce the need for continuous performance when it comes to safety.

How did last year’s AGM go? The annual remuneration report was approved with 97.24% of votes in favour. 

What’s the view of voting agencies? Glass Lewis welcomes the use of bonus discretion and recommends shareholders vote in favour of the annual remuneration report.

How’s the company doing on diversity? The gender breakdown of the board at the end of the year was 33% female, while one director was from a minority ethnic background.

Balfour Beatty

When: 10am, Friday 12 May.

Where: The Curve Building, Axis Business Park, Langley, Berkshire, SL3 8AG.

How to participate: Proxy voting instructions need to be returned by 10am, Wednesday 10 May. More details about Balfour Beatty (LSE:BBY)'s AGM can be found here.

Who’s in the chair? Charles Allen, the former chief executive of ITV and Compass, has held the role since May 2021.

How did the company do in 2022? Revenues rose by 8% to £8.93 billion, with an improved performance in construction services contributing to a 42% rise in underlying profits to £279 million. Underlying earnings per share lifted 60% to 47.5p and the company ended the year with net cash of £804 million, up from £671 million the year before. A final dividend of 7p a share is due to be paid on 5 July, leading to a 17% rise in the 2022 total to 10.5p. This takes the return to shareholders from 2021’s capital allocation framework to over £570 million.

How have shares performed? Up 26% to 337.6p (380.2p on Thursday).

How much is the boss paid? Leo Quinn’s base salary increased in July by 3.5% to £828,000. His total remuneration for 2022 amounted to £4.1 million, the highest figure for the chief executive’s position since 2017. The annual bonus scheme paid cash and deferred shares worth £1.18 million based on 95% of the maximum opportunity. Long-term incentives granted in June 2020 vested at 100%, contributing £1.9 million. This was after the company ranked 13th out of 120 FTSE All-Share companies for total shareholder return, met the maximum operating cash flow target and earnings per share exceeded expectations.

What’s in the new remuneration policy? The current policy was approved at the 2020 AGM with over 93.5% of votes in favour. A review has concluded that it remains largely fit for purpose and supports the strategy of the company. Some minor changes have been proposed, but there are no increases to the variable pay opportunity.

How did last year’s AGM go? The annual remuneration was approved with 93.59% of votes in favour.

What’s the view of voting agencies? Glass Lewis recommends shareholders support the annual remuneration report and the binding vote on the new three-year remuneration policy. 

How’s the company doing on diversity? The board is now compliant with the Hampton-Alexander Review’s target of 33% female representation. However, it fails to meet the requirements of the Parker Review on ethnic diversity, which it intends to address through succession planning as two independent non-executive directors are set to reach the end of their tenure in 2024.