Endurance’s remuneration plans rejected by shareholders

An 8-K filing from Endurance on 23 May revealed that shareholders voted against remuneration plans for senior management in a non-binding advisory vote at the company’s annual general meeting.

A negative pay advisory outcome is unusual and may reflect disquiet over what was described as a “mega equity award” for current CEO John Charman totalling $42 million, by Institutional Shareholder Services.

The vote against the planned compensation of senior executives at Endurance suggests that there is opposition to Endurance’s remuneration plans, with around 60 percent of company shareholders voting against the measures in the ‘say on pay’ vote.

Endurance defended the pay deal arguing that while it was an unusual arrangement, the $42 million restricted share and options deal is for a five-year period that, when viewed on an average annual basis, would put it in line with wider CEO compensation in the sector.

Endurance told Bermuda:Re that Charman would be taking no base salary or other compensation during the period, had invested $30 million of his own money into the company when he became CEO last May and that both his personal shares and the shares he was granted are restricted for the first five years of his tenure.

The company said that despite the outcome of the ‘say to pay’ vote, they stand by the arrangement which fully aligns Charman’s interests with those of Endurance’s shareholders.

‘Say on pay’ measures were introduced in the US in 2007 under Dodd-Frank, but on a non-binding basis. There is currently no similar legislation in place in the EU, but they form part of the move by shareholders globally to enhance accountability and reflect rising shareholder activism.

Negative outcomes for such ‘say on pay’ votes are however infrequent.

According to a recent report by Towers Watson entitled US Executive Pay Advisory Votes, 91 percent of remuneration decisions were positive in 2014, with only 2 percent of decisions going against company pay recommendations in 2014.

The report found that of the 19 failed ‘say on pay’ votes that have taken place since 2011, 15 took place at companies that had shared CEO and chairman positions.

With compensation committees typically comprising members of the company board whose fiduciary responsibility is ultimately to shareholders, there is the potential in such instances for a conflict of interest. Charman is both chairman and CEO at Endurance.