AstraZeneca is a pharmaceutical company with a strong portfolio of commercial products that lead to better overall health outcomes for patients, who are often suffering from life-threatening or debilitating illness. The company's products treat a broad range of issues and target areas of high unmet need, particularly in oncology and rare diseases.
Objective
Aligning executive pay with performance, fostering long-term value creation, and improving corporate governance.
Background
In advance of the 2024 AGM, AstraZeneca’s management proposed a new remuneration policy significantly increasing maximum variable pay for executives. This included a potential maximum long-term incentive plan (LTIP) level of 850% of base salary, which is unprecedented in the FTSE and further widens the variable pay gap with FTSE 10 peers. This proposal follows a period where the CEO has achieved his maximum LTIP awards ensuring that his overall package is already generous compared to European peers.
AstraZeneca’s rationale for increasing pay is based on the company’s global reach in a high-paying sector with a CEO who is well regarded CEO..
We acknowledge these factors and understand the need for executive compensation to remain competitive on an international basis. That being said, it is WHEB’s view that the scale of this further increase is neither justified nor in the interest of shareholders.
Actions
WHEB voted against the proposed remuneration policy at the 2024 AGM and, as per our policies, we wrote to AstraZeneca’s management to explain why. We later joined a broker call with AstraZeneca’s Chair discussing governance and executive compensation, which occurred following the AGM.
Outcome
Milestone 2 – company shares or agrees to disclose information on the issue
Typically, 20-30% votes against management is considered a clear signal of shareholder dissent, even if the proposal is passed. This proposal received only c.60% support, sending a strong signal to AstraZeneca that a significant proportion of its shareholders do not believe the pay policy is in their best interest. This potentially explains why the Chair dedicated time to further justifying the policy in a broker call.
During that discussion, the Chair argued that the remuneration policy was fair in a global context, especially when compared to US peers which do not disclose the performance criteria in the LTIP to the extent that UK companies do. The Chair also counterargued that the value created by the company under the CEO’s leadership justifies the pay levels.
While we are not supportive of the pay increase, we acknowledge that AstraZeneca is looking particularly strong at the moment, and that the business could potentially double in size under the CEO's leadership by 2030 thanks to the very strong pipeline which includes 20 novel molecules. On this basis, we remain supportive of AstraZeneca from both a fundamental quality and an Impact standpoint.
It seems unlikely that the company is likely to change its attitude on compensation, unless forced to via policy or regulatory action. We will continue monitoring executive remuneration to ensure that the basis on which the pay policy has been adhered to.