EDITORIAL: Groundhog Day at the corporate trough

If shareholders voting against CEO and executives’ high pay at annual general meetings (AGMs) with little consequences is sounding like Groundhog Day, that is because it is. 

The recent Pick n Pay shareholder meeting is the latest in which shareholders voted against senior executives’ pay in two non-binding advisory votes that require the company to meet unhappy investors. 

Pick n Pay’s failed votes came as no surprise. More than a dozen top 40 companies in 2020 faced off with dissenting shareholders over pay for the senior rank.

Senior executives at the country’s second-largest retailer missed their short-term bonus targets for a second year running in 2021 when annual profit dropped. But missing the target was no problem at all for the remuneration committee. The committee, blaming Covid-19,  adjusted the short-term targets 45% lower so that outgoing CEO Richard Brasher would still get his R20m short-term incentive, which he had missed out on the year before. 

Brasher, who arguably did a good job in his eight years at the helm, left the firm pocketing almost R80m a year after the retailer asked an undisclosed number of staff to take voluntary retrenchment packages, costing the firm R200m. 

Changing remuneration rules after the fact won’t build trust with shareholders. It’s a system that seems unfair.

But if Brasher’s exit package sounds a little ridiculous, just wait.

Incoming CEO Pieter Boone was granted a million shares as a signing-on bonus with a vague explanation that these shares would be linked to annual performance targets.

The problem here is that it is hard to trust the performance conditions Boone has to meet to get his shares worth about R52m based on the share price after the remuneration committee showed how willing it was to adjust the targets for his predecessor. 

Boone,  who earns a R10m annual base salary plus annual incentive bonuses, will get half the shares in 2023 and the other half in 2025, if he performs.  

There are other issues with Pick n Pay’s remuneration. 

Gareth Ackerman, a highly paid non-executive director, sits on the Pick n Pay remuneration committee. He votes on pay for the executive directors, which include his sister Suzanne Ackerman, the transformation director; and his brother, Jonathan Ackerman, the customer director. 

That is arguably a conflict of interest.

Pick n Pay, is now going to meet shareholders after the non-binding votes failed to reach a 75% majority, in line with a JSE rule. 

This is all fine and well. But does it change enough? Pick n Pay shareholders have been unhappy for a while. 

A year ago, opening the company’s AGM, Ackerman said he didn’t expect the 2020 remuneration advisory votes to get the required 75%. He had seen votes sent in advance. 

However, the remuneration votes just passed in the end, thanks to the Ackerman founding family controlling more votes than ordinary shareholders. 

However, Pick n Pay, aware of ordinary investors’ unhappiness, met shareholders in 2020. And to its credit, Pick n Pay made changes. The remuneration committee chair, Hugh Herman, stepped down at the end of February after 45 years at the company following uncomfortable questions from activists about his independence.

But Pick n Pay’s voting structure allows votes to pass even as ordinary shareholders are unhappy. 

The votes all seem like a song and dance that makes headlines and goes nowhere. Shareholders express unhappiness, meetings are held and minor tweaks are made. 

In Australia, there is a two-strikes rule. If the remuneration votes fail twice, the remuneration committee needs to step down. But in SA, if the votes fail to pass, there is no mandatory rule or consequence besides meeting and talking to shareholders behind closed doors. 

Activist NGO Just Share has argued that it is time to start voting against re-election of company directors, starting with kicking off the remuneration chairs when votes repeatedly fail to pass.

We also need to shift the power from the board to shareholders, who would not risk losing top talent by underpaying their leadership. That could also help advance the moral and social justice issues, such as the widening pay gap, which are behind a broader society backlash over lavish pay to executives.

Until then, expect sound and fury and nothing changing.