Proxy adviser ISS has told investors to vote against Standard Chartered’s pay report and policy, criticising the bank for not taking adequate punitive action against top managers in the wake of a record UK fine for regulatory reporting failures.
On Friday, ISS said that its “pay for performance concern level was high” after executives’ bonuses were cut by what it considered an insufficient amount despite a £46.5mn penalty from the Prudential Regulation Authority in December.
The PRA censured the bank for repeatedly reporting a key liquidity metric incorrectly and not being “open and co-operative” during an investigation.
“The remuneration decisions . . . do not adequately reflect the gravity of the failures identified by the PRA,” ISS said in a report. “Neither do they fully utilise the provisions available to reduce awards in recognition of failures in risk management, financial reporting and financial losses.”
“With respect to the PRAs findings, specific actions were taken on remuneration outcomes, recognising the significance of the issue and following an internal review in 2019,” the bank said in a statement.
The influential proxy adviser’s stance is a blow for the lender and Bill Winters, chief executive, ahead of StanChart’s annual meeting on May 4. He is now in his seventh year in charge and about to embark on another strategic overhaul.
While the stock has risen 17 per cent so far this year, it has plunged 49 per cent since Winters took over in June 2015 and it trades at about a 50 per cent discount to the book value of its assets, leaving it with a market capitalisation of £20bn.
As the result of the PRA fine, StanChart executives received only a 7 percentage point reduction to their performance scorecard for 2021. They were therefore deemed to have hit 57 per cent of their targets, equivalent to £1.4bn in bonus pay, 38 per cent higher than in 2020.
The bank has proposed that Winters’ total pay be increased 19 per cent to £4.66mn last year, while Andy Halford, chief financial officer, gets a 21 per cent boost to £2.98mn.
Scrutiny of financial executives’ pay has been high, particularly in light of the cost-of-living crisis across Europe. Shareholders of UniCredit, NatWest, Credit Suisse and Axa have all also been urged to vote against management on various AGM proposals.
While offering “qualified support” for the re-election of StanChart chair José Viñals, ISS criticised him as the director ultimately responsible for standards at the lender and for setting pay levels.
“The material governance failings identified by the PRA and the resulting record fine have not been satisfactorily acknowledged in the annual report, nor have material disclosures been provided to explain the company’s response to the PRA’s findings,” the report said.
“The PRA’s enforcement action did not criticise Dr Viñals,” the bank said. “The annual report’s treatment of the PRA’s action . . . was appropriate.”
It is not StanChart’s first controversy over pay in recent years. In 2019, Winters was forced to accept a pay cut after almost 40 per cent of shareholders voted against his package. The issue centred around the calculation of his £474,000 pension allowance, which did not follow standard industry practices.
ISS’s latest report referenced the 2019 affair, saying that it raised concerns about “the alignment between executive remuneration and that of the wider workforce”.