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EQ SHAREHOLDER SERVICES' CASE STUDY | HUNTING PLC | HYBRID REMUNERATION FRAMEWORK
Using Data And Engagement To Help Win Shareholder Approval For An Innovative Remuneration Framework
Summary
Hunting PLC is a world-leading manufacturer and technology provider for the global energy, aerospace, medical and power generation industries.
While the firm is listed on the FTSE 250 and incorporated in the UK, the group generates more than 70% of its revenue in North America.
As a result, the bulk of Hunting’s operations, as well as its Chief Executive and the majority of its senior leadership team, reside in the US.
In order to achieve its commercial goals and meet its talent requirements, the firm needed and subsequently constructed a new ‘US-influenced’ remuneration policy to help it compete for talent in the US, which is by far its largest market.
The type of hybrid remuneration framework proposed by Hunting and its consultants Mercer was – and still is – considered highly innovative in the UK, even though it is commonplace in the US.
As the first UK-listed and incorporated firm to attempt to introduce such a hybrid remuneration framework, the expectation for push-back at the company’s AGM was high.
Therefore, Hunting engaged EQ for its expertise in shareholder register analysis, vote projections and shareholder engagement as it sought shareholder approval for the proposed changes.
Challenges
During 2023, Hunting reviewed its directors’ remuneration policy in light of its ambitions for long-term growth and diversification.
Following that process, the company’s remuneration committee felt that it needed to develop a new remuneration and long-term incentive policy to attract talent in its main market, the US.
Many of Hunting’s US-based peers routinely offered senior executives a mix of restricted stock units (RSUs) and performance shares (PSPs) whereas, in-line with typical UK market practice and investor expectations, Hunting has historically only granted PSPs. The existing approach was not seen as competitive in Hunting’s primary market or aligned to how other employees are rewarded.
Further, many of Hunting’s competitors in the US offered much more generous overall remuneration levels for executive directors, making it even more difficult to hire the best talent.
Our Chief Executive and much of our senior leadership team are based in the US, therefore we felt we needed a remuneration framework that looked, tasted and felt like a US-style package, because that is where we tend to look for talent.”
Ben Willey – Company Secretary, Hunting PLC
As a result, the FTSE 250 listed advanced manufacturing firm sought to:
Given that RSUs and hybrid schemes are uncommon in the UK, and the remuneration committee sought to increase executive pay well beyond that of the average worker, its proposals would generally have been considered controversial by UK standards.
However, Hunting felt it was necessary to restructure its executive director remuneration framework to remain competitive in the executive jobs market.
Ben added: “When you benchmarked Hunting against other companies in the global energy services sector, our US counterparts had a layer of restricted stocks and time-based stock as part of their package. We therefore approached the introduction of RSU sensitively given that they are viewed in the UK as ‘guaranteed pay’ despite being the norm in North America.”
US pay levels have always been higher than in the UK, but we have seen even more divergence in recent years, meaning it is difficult for UK-based firms that have a major US presence to compete for talent.
US pay has gone up, in addition to which it has become the norm in the US for the CEO and other top executives to be granted restricted stock units as well as performance shares, something which is nowhere near as embedded here.”
Nic Stratford – a partner at Mercer, which helped Hunting devise the remuneration package
Solution
After Hunting engaged EQ in September 2023, we conducted a thorough analysis of the company’s shareholder register, their voting behaviours and governance policies. Using this information, we could determine the type of shareholder within it, their likelihood to vote on the proposals and how.
Using our internal data, it was also possible to ascertain whether Hunting’s shareholders used proxy advisor research reports, which ones, and how dependent they were on these reports for their voting decisions.
Together, this source of data and insight allowed Hunting to decide which shareholders it should focus its early efforts on as it sought approval for its new remuneration framework.
After this, EQ conducted scenario modelling based on expected proxy advisor recommendations, shareholder engagement feedback and data about how they had voted on similar proposals.
Following this, we commenced our pre-AGM shareholder engagement specifically on the remuneration policy, and further scenario modelling based on the draft and final proposals.
This was followed by an extensive programme of shareholder engagement on all resolutions for the 2024 AGM.
From these interactions, we reported back on general sentiment towards the remuneration proposals and advised which shareholders required further engagement. These additional engagements gave Hunting the ability to offer a compelling explanation as to why restructuring its executive remuneration framework would be vital to its future success.
Prior to the AGM, a proxy advisor released a negative report urging shareholders to vote down the new remuneration proposals at Hunting’s AGM. To counter this, we helped draft a rebuttal letter and it was distributed to shareholders to mitigate the risk of voting in line with the ‘against’ recommendation.
In April, we reconciled the proxy votes that had been submitted ahead of the AGM, a process called ‘vote matching’, to determine who had voted and how, compared with what was expected. This process also involved following up negative votes and arranging further engagement meetings with Hunting.
Results
EQ’s regular scenario modelling, vote projection insight, and collaboration with Mercer on shareholder engagement led to nearly 86% of voting in favour of the remuneration policy at Hunting’s AGM.
Hunting’s willingness to compromise and listen to shareholder feedback was also instrumental in getting resolutions passed where other companies had failed.
The result was even more impressive given that Hunting was the first UK-listed and incorporated entity to propose such a remuneration package for its senior leadership team.
The three of us – Hunting, Mercer and EQ – worked really well together to get what was a stunning outcome.
Given the headwinds we faced, to get 86% approval for the proposals was a great result and perhaps does not reflect how difficult it was to achieve, especially given how uncommon hybrid schemes are in the UK.”
Anne-Marie Clarke, ACG Director – Head of Corporate Governance Equiniti Group