Our review of the 2021 AGM season and how we voted

Implementing ESG metrics in pay, adjusting remuneration, shareholder resolutions, votes on climate, diversity and auditor tenure - we round-up the AGM season.



Yousif Ebeed
Corporate Governance Analyst, ESG
Pippa O'Riley
Corporate Governance Analyst, ESG

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Against the backdrop of the pandemic, the annual general meeting (AGM) season threw up some difficult judgements in the area of remuneration adjustments.

It also saw a determination to include ESG metrics in performance-related pay and to consider backing shareholder resolutions on climate change and “Say on Climate” votes.

Our voting policy on auditor tenure was also firmed up.

1. Remuneration adjustments due to Covid-19

Many companies have made retrospective adjustments to their remuneration plans in light of the pandemic, because targets set in early 2020 were no longer relevant or achievable.

We assessed these pay and bonus packages on a case-by-case basis, taking into account government support received, share price performance and dividend status, and how performance has been used to justify awarding bonus payouts.

For example, we have supported the adjusted remuneration plans of the Italian financial services firm Cerved. The firm is also making a number of other positive changes to its long-term incentive plans, including increased transparency, disclosure of CEO pay ratio and a clear link to sustainable development goals. The discretion used to pay out bonuses in light of the pandemic was reasonable and the company opted to pay out the majority of the awards in shares, which aligns with shareholder interests.

Our objective is to ensure pay outcomes are still aligned usefully with performance and reward management teams who have navigated their company relatively well through the pandemic.

In the US, it has long been company practice to propose a long-term equity plan that is entirely time-based and lacks performance conditions.  In normal times, we would vote against these proposals.

But given the difficulties that companies have faced when setting long-term targets as a result of the pandemic, we have made an exception this year. Provided the company has outlined a commitment to increasing the performance element of the incentive in the coming year(s), we have supported long-term plans that are 50% time-based.

2. ESG metrics in performance-related pay

There is increasing pressure for companies to rethink metrics used in assessing performance, and to ensure the targets set are ambitious, measurable and tied to their corporate sustainability strategies.

In the past, many companies have included social-based objectives such as culture, or health and safety in their short-term bonus awards.

Recent conversations have turned to the long-term incentive awards, which have performance periods of a minimum of three years. Many companies have committed to achieving net zero targets within the next 10, 20, or 30 years, so we need to hold the management teams of today and of the future accountable to these.

This year has seen the inclusion of many more sustainability-based metrics, and this is a trend set to continue into 2022. For us as investors, the key is to ensure the metrics are based on clear key performance indicators and are tied to strategy.

One standout example of successful implementation is that at DSM, a Dutch science-based company active in nutrition, health and sustainable living. DSM allocates 50% of its annual bonus to non-financial criteria and 50% of its long-term incentive plan to energy efficiency and greenhouse gas emissions reduction targets, which are validated by the Science Based Targets Initiative. We met with DSM recently to discuss more detail around how these metrics are measured and how shorter-term targets are set based on its public commitments to 2030 and 2050 goals.

3. Shareholder resolutions

Our support of climate resolutions has doubled in the past year, and we expect this to continue. In particular, we have supported more shareholder proposals than ever before across the issues of climate, human capital management, diversity and biodiversity.

In the US, we have seen an increase in shareholder proposals requesting a racial equality audit. These were often tabled at financial service companies, demanding an audit of the adverse impacts of the company on non-white stakeholders and communities of colour. 

In each case, we analyse the existing practices in place, such as human capital, and diversity and inclusion reporting. Where we believe that an audit would help identify and address any remaining gaps or areas of development in the current approach, we will support the proposal.

Read on: This AGM season’s shareholder resolutions: how we have voted

4. Say on Climate votes

The “Say on Climate” is a new item on AGM agendas. It is a proposal from management teams that allows shareholders to vote on a company’s climate transition plan.

We are supportive of the inclusion of these resolutions on AGM agendas and have generally been impressed with the plans. That said, we have voted against in instances where we do not believe the emissions reduction targets to be stretching enough.

5. Diversity

While investors are intervening globally on this issue, different regional norms must be recognised. For example, globally we require all boards to have at least one woman on the board. If they do not, we will vote against the head of the nominations committee or the board chair.

But in many developed regions such as the UK, US, and Europe we will require at least 20% gender diversity on a board. We have also taken a stronger stance on all-male boards in traditionally male-dominated markets, such as Japan.

We have also encouraged companies that are considered “best in class” to try and improve their board diversity beyond our expectations.  As an example, we wrote to the chair of AIA Group to this effect, and the company responded shortly after with a statement confirming the appointment of a new female director. 

In 2021, we voted against our highest number of individuals based on poor gender diversity by a count of 238 compared to 156 in 2020, and 27 in 2019.

6. Auditor tenure

One of the major changes we made to our voting policy this year was the introduction of an external auditor tenure guideline.

We expect companies to rotate, or at least tender, their external auditors at least once every 10 years in the UK and Europe, and once every 20 years in the US. This is to ensure appropriate independent oversight of the auditors, which often become compromised as tenures develop.

Since this change of policy, our votes against on this topic were higher than ever before. In 2021 we voted against 14.8% of auditor re-elections globally. This compares with 5.4% in 2020.

The below charts show a year-on-year comparison as to how we voted in the last three years, as well as how we voted at schareholder resolutions.


Source: Schroders



Yousif Ebeed
Corporate Governance Analyst, ESG
Pippa O'Riley
Corporate Governance Analyst, ESG


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