BAE faces growing investor revolt over chief executive’s pay

Britain’s largest defence contractor, BAE Systems, is facing the prospect of a growing shareholder revolt over proposals to hand its chief executive an extra £2m to stay.

The voting advisory service for the Investment Association, Britain’s largest investor lobby group, has given a “red-top” alert, its highest warning signal, to the potential share award for Charles Woodburn, according to people familiar with the situation. 

The 50-year-old was given a lucrative share package last year after an attempt, understood to be from mining group Rio Tinto, to poach him. The award only becomes payable if Woodburn stays at BAE for three years.

He was also awarded a two-step increase in his salary, which has risen to £1,107,538 — a 13 per cent rise from his previous salary of £980,000.

The IA’s alert comes just days after Glass Lewis said investors should oppose the award at BAE’s annual meeting on May 6. Sky News separately reported on Thursday that Institutional Shareholder Services, another proxy adviser, had advised its members to do the same, describing the award as “well outside market norms”. 

“One-off pay awards to address retention concerns have frequently been shown to be ineffective, and are therefore not typically supported,” ISS added.

BAE disclosed in its annual report and accounts that it had decided to increase Woodburn’s remuneration after an approach from a UK company. It said the board valued his “significant contribution” since his appointment three years ago and recognised “the importance of his leadership role at a critical time”. 

“Accordingly, the directors decided that steps should be taken to secure his leadership.”

It stressed that his higher salary was “in line with median market levels for a FTSE 50 chief executive and is a fair reflection of his value, competence, skill and performance having now been in post for over three years”.

BAE is Britain’s biggest defence contractor. Its 85,000 employees build everything from F-35 fighter jets to nuclear submarines and combat vehicles.

Sources familiar with the situation said that another factor in the board’s reluctance to let Woodburn leave was the politically sensitive nature of the company’s work on government defence contracts. The chief executive also needs to be a British citizen. 

BAE said it was “proactively engaged” with its top shareholders on the issue, adding they are “overwhelmingly supportive of the board’s actions”.

Nevertheless, the timing of the award is understood to have raised concerns among some shareholders. Many big investors from Legal and General Investment Management to Fidelity International have warned UK companies to show restraint when it comes to executive pay this year, particularly in light of the pandemic.

BAE, however, has previously stressed that it managed to deliver for all its stakeholders throughout last year and did not access any of the government’s support schemes. The company in February fulfilled its promise to restore its dividend having suspended its payout like many other companies at the onset of the pandemic. 

One top 20 BAE shareholder said they had told boards: “Don’t go and pay your directors a bonus or a transition bonus to keep them there, when you can’t do the same for your wider employees.”