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Expert Corporate Governance Service (ECGS)
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Bae Systems - AGM 09 May 2019

Item 2: Approve the Remuneration Report

The structure is weighted more towards rewarding long-term performance, but maximum long-term incentive pay and the maximum bonus opportunity are excessive.  The quantum for the year was also considered excessive. The company operates two long term incentive plans, one of which does not apply performance conditions, which does not meet best practice. Both the STI and LTI are heavily reliant on EPS.  Over-reliance on EPS could result in management making decisions to maximize profits for the short term, often at the expense of long term shareholder value. EPS can be positively influenced through share buybacks, fluctuations in foreign exchange, or amendments made to accounting rules & regulations. Finally, we are concerned that the Remuneration Committee used its discretion to lower a performance target and increase the payout of the annual bonus. Accordingly, we recommend shareholders oppose.

 Item 5: Re-elect the Chairman of the Board and the Nomination CommitteeThe Company announced that it will add Stephen Pearce and Nicole Piasecki to the Board as of 1 June 2019, but they have not been put up  for shareholder approval at the AGM.  Furthermore, the Lead Independent Director and Audit Committee Chairman, who are the same person, have not been replaced in a timely fashion, which would have ensured orderly succession and the independence of the committees.  We recommend shareholders oppose.

 

Underlying
BAE Systems PLC

BAE Systems is a defense, aerospace and security solutions provider. Co. supplies defense equipment, electronics and services, and cyber, intelligence and security solutions for governments and commercial markets. Co.'s offerings include the: manufacture of Typhoon assemblies for European partner nations and other export customers; design and manufacture of sub-assemblies in the U.K. and provision of equipment in the U.S.; development of future air system capabilities, including unmanned air systems; maintenance, support and training for Typhoon aircraft in service with the U.K. and Saudi Arabian air forces; and design, manufacture and support of defense and commercial avionics equipment.

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Proxinvest

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Expert Corporate Governance Service (ECGS)

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