Booking Holdings


Last year, we voted against Booking Holdings’ executive compensation package, which we viewed as overly generous, too complex and poorly disclosed in places. Since then, we have enjoyed some constructive meetings with the company where we have been able to outline the rationale for our vote and detail where we think the business can improve its remuneration practices. We continued this engagement in May when we met with senior Booking representatives to discuss the proposed changes for 2023.

In 2022, the compensation committee chose to utilise discretion to adjust the short term bonus targets, after acknowledging that, in hindsight, the initial targets proved too easy. In the 2023 long-term remuneration package, a better balance between time-based restricted stock units and performance-based units should help to avoid the need to adjust targets in the future. Finally, and most importantly, a return to three-year targets for performance share units is welcome as is the introduction of a total shareholder return modifier, which will better align the pay-out of performance-share units with the experience of shareholders. Given these changes and our positive experience of Bookings’ openness to constructive engagement, we are comfortable supporting management on this issue at the upcoming annual general meeting.



To vote in favour of a management proposal does not necessarily imply uncritical endorsement. Often a decision is made “on balance” and only after careful consideration of a number of factors. In 2021, we wrote to LVMH expressing our view that, despite our support at the company’s recent AGM, better disclosure around executive remuneration would be welcome. LVMH is generally very transparent in its approach to reporting but there was, in our view, a lack of clarity around how the company structures compensation for its most senior representatives. To this end, we were encouraged by the improvements made to the 2022 package, notably the inclusion of environmental and social responsibility targets for bonus performance shares. While this positive direction of travel meant we were comfortable voting with management again at the 2022 AGM, we subsequently wrote to the company requesting a meeting to discuss gaps in disclosure that we believed could still be better addressed.

Following on from our letter, we enjoyed an open and constructive meeting with board member and former chair of the Nominations & Compensation committee Charles de Croisset, who made it very clear that a desire for flexibility underpins LVMH’s approach to executive remuneration. In his opinion, luxury is a talent business, and some discretion is required to retain existing talent and hire the best new people. That’s not to say that remuneration is by any means arbitrary. A broad range of quantitative and qualitative criteria is considered when determining packages, but the company believes that the freedom to have a discussion on compensation is preferable to rigid and often complex metrics. The focus is very much on sustainable pay plans based on long-term growth and long-term results. Reflecting this, many senior executives at LVMH have significant shareholdings, which align their interests well with those of external shareholders.

Our conversation with Mr. de Croisset was valuable in that it gave us a better understanding of how LVMH thinks about remuneration. While it seems unlikely that the company will disclose as much information in the near term as we would ideally like, it’s clear that LVMH thinks very carefully about how it remunerates senior executives and that it puts the long-term success of the business at the heart of compensation structures. This aligns with our policy preference for executive remuneration to “align the interests of management and directors with long-term sustainable value creation.” Taking these factors into account and given the company’s already excellent level of disclosure across many facets of the business, we remain comfortable for now with this approach.



In advance of Nike’s annual general meeting, members of the Research team met with senior representatives of the company to discuss shareholder proposals, including one relating to materials sourcing from China. Reports that the Uyghur ethnic minority group in China’s autonomous Xinjiang region have been subject to forced labour in the cotton supply chain have led many to call on Western companies to source their materials from elsewhere. In this case, the shareholder proposal requested that “Nike adopt a policy to pause sourcing of cotton and other raw materials from China until the U.S. government Business Advisory is lifted or rescinded”. Nike advised shareholders to vote against the proposal.

Supply chain and sourcing risk is an area into which we have conducted significant research in recent years, and it remains an ongoing focus for our Research team. In 2019, two members of the team undertook an extensive trip to Vietnam and Bangladesh to better understand sourcing risks specific to the Asian supply chain for the global apparel industry. It was clear from our conversations with industry participants and visits to manufacturing facilities that international brands were driving a consolidation around best-in-class suppliers but that risks remained, particularly regarding Tier 2 suppliers. As investors, we think this necessitates a pragmatic approach: we expect our investee companies to be fully committed to upholding high standards in their supply chains, while understanding that it is not realistic to expect them to eliminate risk completely.

In our view, Nike is a market leader in this area, with an approach that continues to improve and evolve. While the company does not own or operate the factories which manufacture its products, it does implement a supplier code of conduct to which all facilities must adhere. This policy prohibits any type of forced labour, and regular evaluation, including announced and unannounced third-party monitoring, is conducted in a bid to identify non-compliance. Furthermore, by 2025, the company intends to source 100% of its materials from facilities that meet its sourcing criteria. At present, 85% of facilities in Nike’s extended supply chain comply with these criteria, including 100% of Tier 1 (finished goods) suppliers. The company recently widened the scope of its 2025 target to include significant Tier 2 suppliers. There are also several initiatives in place aimed at improving traceability and mapping of raw material sources, including DNA testing. It is important to bear in mind, however, that this work is conducted on a ‘best efforts’ basis – it is extremely difficult for Nike or any other company for that matter to ensure 100% compliance within its supply chain.

Based on our conversation with the company and our understanding of its approach to supply chain issues, we took the decision to vote with Nike and against the shareholder proposal. In our view, the proposal’s fundamental objective – do no business with China – was unrealistic, given the country is integral to the company’s Asia-focused sourcing model. And while it’s true that there are risks involved in this model, Nike works hard to understand these and to support best practice and promote positive change where possible, setting the highest standards in the industry.



We met with Paychex in advance of the payroll processor’s AGM to discuss several governance related items, one of which was the upcoming ‘Say on Pay’ vote. Paychex has historically been inherently conservative in its remuneration practices. For many years, as measured both internally and by third parties, the company paid below the median level of its peer group, but consistently outperformed that peer group from a financial performance perspective.

However, a May fiscal year-end presented Paychex with problems when it came to setting compensation during the pandemic. When Covid-19 arrived in March 2020, the company was 46 months into a 48-month long-term incentive plan (LTIP), with performance running at 127% of target. Subsequent lockdowns lasted through the end of the LTIP period into July when the structure of the next plan was being discussed. It was in this context that the Paychex board sought to apply discretion with respect to the lapsing plan and 100% time-based equity for the new plan starting May in 2020 (LTIPs at Paychex had historically used 50% time-based, 50% performance-based equity). For the LTIP starting in May 2021, Paychex moved back to 40% performance-based equity, rather than 50% given the pandemic was still ongoing and the outlook remained highly uncertain. However, in 2022 the company has returned to the original 50/50 mix.

Throughout the whole process, we believe the board tried to stay true its conservative pay philosophy, whilst also making sure that employees were rewarded appropriately in order to ensure strong retention. Despite some shareholder opposition to the use of discretion, we do not believe this was applied lightly. This was an extraordinary period and it is hard to see a future scenario which would require the use of discretion again. The criteria that underpin the vesting of performance-based equity at Paychex relate to revenue and operating profit goals. This is very much aligned with how management thinks about the business – delivering strong top-line growth and maintaining already industry leading margins is key. The remuneration philosophy deliberately focuses on what Paychex is in control of, rather than using performance indicators based on peer-relative total shareholder return. For these reasons, it is our intention to vote with management and for the ‘Say on Pay’ at the forthcoming AGM.