AstraZeneca PLC has faced a large shareholder rebellion over its pay arrangements for the company's chief executive and chief financial officer.
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The Cambridge, England-based pharmaceutical firm said 38.8% of votes cast at its annual meeting Thursday opposed a change to its distribution of a share award known as AZIP. The company said investors holding 72.3% of shares voted on the remuneration report.
Previously, AZIP would vest only if the company's core earnings per share were at least one-and-a-half times the dividend and if the company maintained or increased the dividend in each of the four years following the awarding of the share. If the company failed to do so in any given year, the share award would lapse.
AstraZeneca's remuneration committee proposed a loosening of this requirement so that if the target is missed in one of the four years, executives would still receive 75% of the award, rather than none.
Graham Chipchase, chairman of the committee, said the proposal stemmed from shareholder concern that the current structure incentivized too great a focus on short-term earnings. He said assessing dividend payments over longer periods would balance out the effects of factors beyond management's control, such as currency fluctuations.
Institutional Shareholder Services, a group that advises investors, had opposed the remuneration proposal.
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In a report, ISS said that the change "artificially protects the executives against the lapse of these awards, which otherwise would have occurred in the normal course, and as such is not considered appropriate."
ISS noted that AstraZeneca -- which met those targets in 2014, 2015 and 2016 -- was likely to fail to meet the award's conditions this year, when it expects core earnings per share to fall by a low- to midteens percentage. Under the previous arrangement, AZIP shares awarded in 2014, 2015 and 2016 -- relating to performance through 2017, 2018 and 2019 respectively -- would lapse. But with the change, bosses would still receive a portion of the award.
The ISS report added that AstraZeneca lagged behind competitors in disclosing its annual bonus structure.
At the annual meeting, shareholders did strongly support another proposal from the remuneration committee, which would scrap AZIP awards from 2017 onward to simplify the company's long-term incentive plans.
In a statement, AstraZeneca said it had "engaged extensively" with its major shareholders, who mostly voted in favor of the remuneration report.
In 2016, Chief Executive Pascal Soriot received total pay of GBP13.4 million ($17.2 million). That comprised base pay of GBP1.2 million, plus benefits, bonuses and long-terms incentives. Marc Dunoyer, the company's chief financial officer, received GBP4.5 million in total last year, on GBP707,000 ($908,495) in base pay.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
April 27, 2017 15:01 ET (19:01 GMT)