Investor ire piles pressure on UK boardrooms

LONDON (Reuters) - Rising public indignation about executive pay and initiatives to encourage greater engagement have led to a rise in institutional investors challenging companies in shareholder votes, a survey has found.

A report by British investment management industry association the IMA, released on Wednesday, showed 86 percent of investors in 2011 exercised votes at all the UK firms they invested in, up from 81 percent in 2010.

The report comes after a run of high-profile challenges - dubbed the shareholder spring - to executive pay packages by investors frustrated at rising boardroom salaries at a time of declining share prices.

High-profile victims include Andrew Moss, the chief executive of British insurer Aviva, who stepped down after investors voted against his remuneration plans.

And shareholders at the world's largest advertising agency WPP on Wednesday gave a thumbs-down to a big pay rise for chief executive Martin Sorrell, with 59.5 percent of votes at the AGM opposing the remuneration report.

The IMA survey covered 83 institutions, against 50 in the 2010 study, including 58 asset managers running funds of 774 billion pounds in UK equities - 40 percent of the UK market.

The survey also found remuneration was the top priority among respondents, followed by board composition and environmental and social governance issues.

Some of the rise in engagement is attributed by the IMA to a non-binding Stewardship Code, introduced in the UK in 2010, aimed at making investors monitor the firms they own and to intervene when they are concerned.

But rising anger at high executive pay when investors have lost money on their shares, as well as public anger at a time of falling living standards, are also identified as likely causes of the rise in activism.

Liz Murrall, IMA director of corporate governance, said that while "all main institutions" have been actively engaged with management at the companies in which they hold shares, smaller investment managers are now becoming less passive.

"The stewardship code is one influence, media and government influence is another... and one effect that's having is it's highlighting issues to clients who are asking more of their fund managers, who are responding accordingly," she said.

(Reporting by Chris Vellacott; Editing by Laurence Fletcher and David Hulmes)