Close Brothers, the FTSE-250 merchant banking group, faces an investor backlash next week over plans to nearly double its chief executive’s basic salary to comply with European Union pay rules.
Sky News has learnt that a number of Close Brothers’ leading shareholders plan to oppose a new remuneration policy at the company’s annual general meeting on November 18.
Advisory groups including Institutional Shareholder Services (ISS) have recommended opposition to the new policy, which would see the basic pay of Adrian Sainsbury, chief executive, rise from £550,000 to £900,000, next year.
Including other elements, Mr Sainsbury’s overall guaranteed pay would increase from £605,000 to £1.023m.
Close Brothers is proposing the moves because of EU rules limiting the proportion of variable to fixed pay for bank executives.
Under the Capital Requirements Directive (CRD V), the so-called ‘bonus cap’ means that senior staff cannot be paid more than 100% of their guaranteed earnings in discretionary sums – although that figure rises to 200% where shareholder approval is granted.
Mr Sainsbury’s overall pay opportunity is being reduced as a result of the hike in his salary, a decision acknowledged by ISS.
However, Close Brothers has come under fire for the way it is proposing to deliver Mr Sainsbury’s pay rise.
ISS said in a report to clients: “Concerns are raised in the use of the cash-settled salary as the primary vehicle to increase the fixed pay element, when adopting the variable to fixed pay cap imposed by CRD V, rather than introducing a clearly-separated additional pay mechanism to better align with shareholder interests.
“This will lead to significant increases in guaranteed cash-settled pay to the executive directors, which was not the original intention of the variable pay caps originally introduced by CRD IV.”
All of Britain’s major banks have introduced fixed-pay allowances for their bosses, although there were expectations that the EU rules would be scrapped after the UK’s departure from the bloc.
In recent months, there have been conflicting reports about chancellor Rishi Sunak’s attitude to the post-Brexit retention of the EU bonus cap.
A spokesman for Close Brothers said: “Close Brothers has conducted a positive and extensive consultation with shareholders on the proposed changes to its remuneration policy, which are entirely in response to regulatory requirements.”
Close Brothers, which has a market capitalisation of just over £2.1bn, employs more than 3700 people, mainly in the UK.