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RS Group plc (RS Group) has suffered a against executive pay at its annual meeting on 14 July 2022, with 39.2% of votes cast against the company’s remuneration policy. Such levels of dissent are unusual for the industrial and electronic products distributor. Following a slight blip against its disapplication of pre-emption rights resolution in , the company had managed to avoid ‘significant’ dissent (at least 20% opposition) against any of its resolutions between the years of 2018 and 2021. The closest it had come to a revolt had been its remuneration report, with 14.8% of votes cast against.

On 30 March 2022, the company that it was to change its name from Electrocomponents plc to RS Group, as part of the company’s ‘Journey to Greatness’. This new vision for the company was accompanied by the new , under which RS Group’s senior executives would be remunerated via a one-off ‘Journey to Greatness award’ (J2G award)—specifically a long-term incentive plan (LTIP) covering the period from FY 2022–23 and FY 2024–25, with a two-year vesting period. The J2G award, linked to ‘super stretch performance targets based on EPS and strategic delivery’, is to disburse up to 750% of base salary. Moreover, the award is in addition to a bonus and a standard LTIP, which have ceilings of 150% and 250% of base salary respectively. In RS group’s (page 111), the company noted that the policy and the J2G award followed a ‘substantial consultation’ with its major shareholders in early 2022, and were based on the structure of its earlier 2016 remuneration policy:

‘The review considered remuneration policy and structure from a first principles basis to identify and develop a framework and practices that best reflect and support our business strategy and opportunities to deliver for our stakeholders. We looked at a range of alternative structures that are used by other companies as well as approaches we had successfully used in the past; most notably our 2016 Remuneration Policy, under which the LTIP multiplier offered the opportunity for additional long-term reward which helped to drive the greatest period of growth and shareholder value creation in our recent history. This continues to be regarded well by a number of our major shareholders. Our review also considered the latest investor best-practice expectations and guidance, with the proposed Remuneration Policy changes designed to ensure alignment and to reflect our ongoing commitment to the highest standards of governance.

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The J2G LTIP Award is based on the same multiplier principle that underpinned our highly successful 2016 Remuneration Policy discussed above – it provides an opportunity for additional long-term reward for the delivery of exceptional performance, with targets above the top end of the LTIP target range and ahead of the upper end of market practice in the FTSE 100.’

The size of the dissent against the policy must therefore have come as a shock for the company. However, in the aftermath of the vote, RS Group seems to be doubling down on the new remuneration structures for its senior executives, with the company failing to disclose the main reasons as to why the level of dissent against its policy was so high, instead re-emphasising its engagement activities over the past year:

‘The Board notes the outcome of the shareholder vote on Resolution 2 (the Directors' Remuneration Policy) and acknowledges that some shareholders did not vote in favour of this resolution.

The Remuneration Committee and the Board recognise the importance of aligning our remuneration with our high-performance, purpose-led culture and strategy. The J2G LTIP provides a framework to incentivise truly exceptional performance that would deliver significant value for the Group and have a profoundly positive impact on all of the Company's wider stakeholders, namely our people, customers, suppliers, communities and shareholders. The Committee firmly believes that the Policy is right for our business and its stakeholders, and will remain focused on ensuring the J2G LTIP Award is aligned with the best interests of the business and shareholders on an ongoing basis.

As part of developing the Directors' Remuneration Policy, the Remuneration Committee Chair undertook an extensive programme of engagement with our largest shareholders to seek input on the proposed changes. We undertook a multi-phased consultation process with over 20 major shareholder representing around 80% of the register. The majority of these shareholders with whom we engaged with were supportive of our proposals during that engagement process, with around 75% of them voting in favour of the resolution. They acknowledged the approach was the best way to align remuneration with high performance and, in particular, they welcomed the continued focus on long-term performance linked reward which the J2G LTIP Award will bring. Throughout the consultation process we receive valuable feedback and insights from all those we spoke to, with much of the input received influencing the shape of the final proposals.’

Despite the recent shareholder dissent, RS Group had a very successful FY 2021–22. The company was promoted to the FTSE 100 as of 20 September 2021 (for more information, see blog post: ), and paid out a dividend of 18.0 pence per share, a 13% increase on the year before. In addition, according to its , disclosed on 7 July 2022, RS Group has also made a good start to FY 2022–23. The company noted a strong Q1 (1 April 2022–30 June 2022) despite a difficult macroeconomic environment and inflationary pressures, with expectations that its full year revenue and profit will be ‘slightly ahead of current consensus estimates’. Between 5–19 July 2022 RS Group’s share price increased 14.6% from 831.50 pence per share to 952.5 pence per share.

So far during the 2022 AGM season there have been eight FTSE 350 companies that have received significant levels of dissent against their remuneration policies, RS Group’s being the most recent and second largest. Moreover, 75% of them (six out of eight) have taken place at companies in the FTSE 100. The average level of dissent for policies at the eight companies was 33.4%.

For more information on investor dissent during the 2022 AGM season, see our recently published Trend Report: FTSE 350 AGMs: Post-pandemic trends in H1 2022.