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ACCA Strategic Professional · Strategic Business Leader · The board of directors

Orlin plc's shareholders passed a non-binding vote against the remuneration report, with 38% opposed. The remuneration committee chair argues that the vote has no legal effect so the policy should continue unchanged. The committee has also benchmarked pay only against the highest-paying peers, causing a ratchet effect. Which course of action best reflects good governance?

The board should engage with shareholders, revise the remuneration policy in response, report on actions taken, and review benchmarking to prevent the ratchet effect of paying above peers. An advisory vote lacks legal force but a large protest vote signals accountability concerns that good governance requires the board to address.

  1. AIgnore the vote and continue, as an advisory vote carries no obligation
  2. BEngage with shareholders to understand concerns, revise the policy, report on the response, and review benchmarking to avoid upward ratchetingCorrect
  3. CReplace the whole board immediately without consultation
  4. DRemove the shareholder vote from future annual meetings

Explanation

A substantial dissenting vote signals shareholder concern, and good practice expects the committee to consult investors and explain actions taken. The ratchet effect arises when pay is benchmarked against upper-quartile peers, so the benchmarking approach should also be reviewed. Ignoring the vote damages accountability, and removing the vote reduces it further.

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