Sage Group, the FTSE-100 software provider, is braced for an investor backlash after proposing big increases to new executives’ potential pay packages.
Sky News has learnt that Institutional Shareholder Services (ISS), one of the world’s leading proxy advisers, has recommended to Sage shareholders that they oppose the company’s new remuneration policy at its annual meeting next month.
The recommendation sets up a possible flashpoint at one of the first AGMs of one of Britain’s biggest blue-chip companies to be held in 2025, and comes at a time when the role of boardroom pay in bolstering Britain’s economic competitiveness is again being intensely debated.
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Sage is proposing to amend its pay policy to enable it to increase the maximum level of variable pay which can be awarded to new executive directors from 500% to 825% of base salary in the first year of employment.
That figure comprises a maximum bonus opportunity of 175% of salary, and an enhanced long-term incentive (LTI) award, capped at 650% of base salary.
“The LTI award may be made as a combination of performance and restricted shares,” said ISS’s report to clients, released this week and which has been seen by Sky News.
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“Material concerns are identified with both the quantum and nature of the LTI award.
“In the round, support is not considered warranted for the remuneration policy.”
ISS’s recommendations are widely followed by institutional shareholders, although its peer, Glass Lewis, has backed Sage’s proposed pay policy.
Roisin Donnelly, the non-executive director who chairs Sage’s remuneration committee, said: “We have valued our engagement with ISS and other proxy advisers over the past year.
“We took their feedback into account when finalizing our proposals and are disappointed ISS has come to this decision particularly in light of performance.
“We believe the proposed remuneration policy changes will help align executive pay with FTSE 100 and global technology benchmarks, emphasize pay-for-performance, and position Sage to retain and attract top talent globally.”
Sage is also proposing to increase the LTI element of its current executive directors’ pay packages from 300% to 400% of salary, although ISS said this had not formed part of its decision to oppose the policy.
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In a letter to Sage shareholders seen by Sky News, Andy Duff, the company’s chairman, said: “We believe the negative recommendation [from ISS] is a disproportionate response, given the primary focus of the policy changes are to address pay for performance alignment for our executive directors.
“Managing succession risk is a key responsibility for the board and so the remuneration committee considered what would be required in in a recruitment scenario.
“In that context, we believe it is prudent to include, solely within the recruitment provision of the Policy, additional flexibility to ensure we could offer a sufficiently competitive remuneration package to attract high-calibre executive director candidates from the global technology talent market.”
One investor said they backed the decision of Ms Donnelly to propose the changes given the international nature of the markets in which Sage operates.
Steve Hare, the company’s chief executive, has been with the company since 2014, while Jonathan Howell, its finance chief, has held that role for nearly seven years.
Their length of service means that identifying successors for both will be a priority for Mr Duff in the coming years, with Sage’s board likely to conduct a global search for both.
On Wednesday afternoon, shares in Sage were trading at 1338.7p, having risen by nearly a fifth over the last year.
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The company has a market valuation of about £13.2bn.
