Rolls-Royce Holdings has won crucial backing from proxy advisors for proposals that could see its chief executive earn more than £18m-a-year.

MEZIESBLOG has seen a report circulated this week by Institutional Shareholder Services (ISS) – whose voting recommendations are closely followed by institutional investors – which recommends that shareholders vote in favour of Rolls-Royce’s new remuneration policy.

Under the company’s plans, details of which were revealed by Sky News in January, Rolls-Royce chief executive Tufan Erginbilgic will see his annual bonus entitlement increase from two times to three times his base salary.

Its revamped pay scheme will also see his long-term incentive award will double from a maximum of 375% of salary to 750% – making it one of the richest such rewards programmes offered by a FTSE-100 company.

Combined with a 15% increase in Mr Erginbilgic’s base salary to £1.58m, the changes will mean he could earn more than £18m in this financial year.

FTSE-100 boards have frequently complained in private that proxy advisors such as ISS oppose their pay policies while waving through more generous schemes at US-listed peers.

However, ISS’s endorsement of Rolls-Royce’s proposals suggests that its approach to executive pay in the UK may be shifting.

“The company provides cogent arguments around ED [executive director] retention, its growth since 2023, and the global nature of its operations and talent pool,” ISS said in relation to the aircraft engine maker. 

“The company’s arguments surrounding executive retention, in the context of the above performance, are compelling. 

“In addition, the remuneration structure remains performance based, with the variable incentives being almost exclusively linked to financial and market-based metrics. 

“Nonetheless, given these significant increases in opportunity, implementation will be kept under review in future years.”

In effect, ISS’s report represents a rubber-stamping of Rolls-Royce’s proposals, which had been discussed in detail with leading investors before they were published earlier in the year.

Mr Erginbilgic, who joined Rolls-Royce at the beginning of 2023, has engineered a stellar recovery for the company, which had been left fighting for its survival after the COVID pandemic brought global aviation to a near-standstill.

He described the company, which supplies engines for the world’s leading airlines and is playing a key role in the development of small modular reactors as a source of new nuclear power, as “a burning platform” and said it had been poorly managed.

Paradoxically, Mr Erginbilgic is likely to earn far less under the new pay policy than under its previous one.

That is a function of the scale of the stock awards handed to him when he joined Rolls-Royce, with its share price in the doldrums.

He was given 8.3 million shares – which at the time were worth £7.5m, and are now valued at about £100m.

Shares in Rolls-Royce, which were trading at about 1278p on Thursday afternoon, have nearly doubled in the last year.

Its stock has been volatile since the outbreak of war in Iran amid concerns about the impact of possible fuel shortages on global aviation, but recovered after the announcement of a two-week ceasefire.