Open Editor's Digest for free
Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.
The writer is president of AstraZeneca
AGM season is in full swing, and with it comes the usual array of remuneration controversies. AstraZeneca was among the first companies this year to receive votes from shareholders on a proposed policy setting out the incentive structure for the next three years.
Although I am grateful that the majority of shareholders supported our proposals, this could have been in jeopardy if more investors followed the recommendations of some proxy agencies. Proxies often make inconsistent voting recommendations across markets: they advise shareholders to vote against the pay policies of FTSE-listed companies, but support US and Swiss companies that typically have higher compensation levels and a lower degree of performance-related pay. These double standards cannot be easily justified, and are seriously damaging the competitiveness of global UK-based companies.
Major shareholders tell us they support our approach to compensation. They want our Board of Directors to take the necessary steps to source the best global talent. We are a truly global company, headquartered in the UK and with our main menu in London. However, our CEOs, senior managers and scientists are everywhere and are mobile all over the world. As we compete to retain this talent, and attract new talent, we must match our global competition, especially those in the United States, Switzerland and the European Union. We do not compare ourselves with the major companies in the FTSE index, and the narrow approach taken by proxy agencies is irrelevant to the decisions of our current and future employees.
We do this by ensuring that the performance component of pay represents the vast majority of total senior management pay. The maximum remuneration, often the only one in the press, is the amount offered when all performance indicators (scientific, financial, sustainability and total shareholder returns) are exceeded. This has led to tremendous value over the past decade.
Under our new policy, our CEO's guaranteed compensation is only 9 percent of maximum pay, with 91 percent at risk. He and his team created more than £140 billion of additional shareholder value during his time at the helm of the company. This represents a significant premium to the returns of its US Big Pharma peers in the same time frame. However, his total salary target – even under the newly adopted policy – is still at the lower end of the range compared to our US competitors.
Foreign companies typically use restrictive deferred compensation valuations that result in the disclosed bonuses being lower than if they were calculated using UK rules. This makes comparisons more problematic and puts UK-based companies at a disadvantage. The problem is not just at the CEO level. We need the best scientists, the best clinicians, and the best commercial and operational talent to achieve industry-leading growth. Launching a pay-for-performance structure at the top is a powerful mechanism that ensures we have the best team possible. This is one of the most important responsibilities of the Board of Directors towards shareholders.
Today the UK is home to many successful international companies. They have invested billions in the country and created thousands of jobs with global responsibilities. But if we cannot compete internationally in the war for talent, this could change radically and quickly. To jeopardize this in the pursuit of historical principles would do Britain a disservice. It should not be considered.
As Chairman of a company with deep roots in the UK, I am keen to see the country retain and attract successful global industry leaders so that global UK-based companies can continue to shine. Allowing UK companies to compete in the international talent market is an important endeavour. It is essential that UK businesses are able to compete fairly on the playing field.
