At the beginning of the 2016 AGM season, there has been a 25.3% vote against Thomas Cook’s directors’ remuneration report.  In its announcement, the company said “We have already engaged with certain shareholders to discuss their concerns, which relate to the timing of disclosure of EPS targets in respect of the long-term incentive plan and the level of disclosure around adjustments made for the purpose of calculating the FY15 bonus.”

Shareholders are reportedly unhappy about LTIP targets only being disclosed retrospectively, after the awards have paid out, the company adopting the “commercial sensitivity” get-out allowed under the directors’ remuneration report regulations.

In the last reporting season, the vast majority of FTSE100 companies relied on this exemption in respect of their targets governing the pay-out of annual bonuses.  There has been some acknowledged improvement in companies’ disclosures of performance targets over the past couple of years.  However, as can be seen from the letter sent by the Investment Association to the chairmen of quoted company remuneration committees, the improved disclosures in 2015 are still not sufficient to satisfy investors’ appetite for greater transparency:

“This year we have seen some improvement in the level of retrospective disclosure of bonus targets but there are still a number of companies that provide no details on their bonus targets or consider them to be commercially sensitive with little justification. The Remuneration Regulations allow companies not to disclose targets if they are “commercially sensitive”; however, any company which considers their targets to be commercially sensitive must explain to shareholders the circumstances that justify the use of this approach and indicate when targets will be disclosed in the future.”

In our recent post, we pointed out that many companies will this year be seeking approval of new remuneration policies on the expiry of the existing ones that were put in place in 2013.  Thomas Cook went on to add “We acknowledge these concerns and plan to engage further with shareholders during 2016 on a number of matters as part of a planned review of our Remuneration Policy.  These matters include the use of holding periods, timing of disclosure of targets, shareholding guidelines and clawback. Shareholders will be formally asked to approve the new policy at our 2017 AGM.”

If disclosure of targets is not possible because of commercial sensitivity, remuneration committees might focus more on the explanation for not disclosing more detail, in order to satisfy investors.  Examples of more extensive explanations for why bonus targets are not going to be disclosed include British American Tobacco and Smith & Nephew.  Both these companies describe why they consider that disclosing bonus targets, even retrospectively, would not be in shareholders’ interests.  Smith & Nephew’s reasoning is as follows “[it] would give information to our competitors about our long-term plan, which they could use to compete against us, for example by re-timing the launch of new products or extension into new growth areas”.

It seems that investors are continuing to flex their muscles and getting more of their own way on disclosure.