Aurizon faces a backlash from shareholders over executive pay at its annual meeting next month after an influential adviser urged institutional investors to vote against the rail company's remuneration report.
ISS has also advised clients - some of whom are Aurizon's largest shareholders - to abstain from voting on the granting of performance rights to chief executive Lance Hockridge. The call from ISS for a vote against the executive pay card comes after Aurizon attempted last month to allay concerns by freezing management's base pay in the new financial year and making changes to short-term bonuses.
The proxy adviser has urged a no-vote because it believes the board has not raised the hurdles for executives' long-term bonuses after Aurizon embarked on a $1.1 billion share buyback last October. ISS said the buyback had a "materially positive impact" on the long-term incentives for Aurizon executives, resulting in "outcomes that did not truly reflect company performance".
Mr Hockridge received a 34 per cent rise in his total pay package last financial year to $6.1 million, making him one of the country's highest-paid executives. His pay totalled $4.57 million a year earlier.
The other main advisers to large investors, CGI Glass Lewis and Ownership Matters, are yet to release their reports on the listed rail company once known as QR National. The Australian Shareholders Association, the voice for retail investors, is yet to cast judgment but warned Aurizon was "flashing red on our radar" given its history.
"We start with a very negative posture on Aurizon, which has probably been the worst in the market over the last two years for changing the goalposts [for executive bonuses]," spokesman Stephen Mayne said.
But Aurizon said the targets for long-term bonuses was challenging "given the tough business environment", and it disputed the proxy adviser's conclusion about the impact of the share buyback on executive bonuses.
ISS has urged investors to abstain from voting on the resolution to grant up to 423,000 performance rights to Mr Hockridge because the earnings-per-share hurdles "appear soft".
It said shareholders were given a "false choice" because the board would seek alternative long-term incentives for the CEO if they did not approve the performance rights at the AGM in Brisbane on November 13.