Distell bosses need to own more shares, says activist shareholder
That said, pay for Distell senior management in 2021 will be 12.5% lower than in 2020
Activist shareholder Chris Logan, on Wednesday, slammed the senior management of Distell, Africa’s largest wine, cider and spirits producer, for owning only 100 shares in the company — held by one person — saying it needs to have “skin in the game”.
Distell, owner of brands such as Klipdrift, Savanna and Amarula, held a transparent AGM on Wednesday, in which Logan questioned the pay policies of senior management and company performance.
Distell’s share price has dropped about 54% in the past five years, with a further drop this year because of alcohol bans enacted by the government in response to the coronavirus pandemic.
The owner of Nederburg wines’ share price was R170.30 five years ago; on Wednesday it was R78.50, much lower that the R95 on March 11, just before the hard lockdown in SA took effect.
Logan said that by owning significant shares, top leadership effectively becomes owners of the company and runs the business in a way that benefits shareholders.
“Distell’s refusal to adopt an owner-managed culture via share ownership and aligned incentives flies in the face of its own history of fairly significant share ownership,” he wrote to Distell two weeks ago.
Of the top executive team, only CFO Lucas Verwey owns shares — 100 of them.
In AGMs, shareholders can express unhappiness with directors’ pay through two non-binding votes. The two votes on remuneration passed with more than 99% on Wednesday, revealing that the majority of Distell’s shareholders do not share Logan’s views on Distell executive pay.
However, the way senior executives are paid is coming under growing scrutiny. Most recently, there was an outcry after former Woolworths CEO Ian Moir was given a parting R77m package, despite presiding over billions in shareholder destruction through his purchase of David Jones in Australia.
By contrast, Distell CEO Richard Rushton’s salary dropped 39% in 2020 due to coronavirus-related salary cuts and Verwey’s pay dropped by 32%. Pay for Distell senior management in 2021 will be 12.5% lower than in 2020.
Share incentive scheme
In response to Logan’s questions about why executive management does not own shares, non-executive director Jannie Durand said it is a consequence of the way the long-term share incentive scheme is structured. The former pay policy meant executive management would only gain shares after three years at the helm if the share price rose. However, it has dropped, so senior management lost out on shares.
Logan said that company directors do not have to rely on share incentive schemes to acquire shares but can buy them like ordinary investors. “There is nothing stopping them from going into the market to buy shares. It is a huge confidence gesture to the market.”
Under a new pay policy, the 10 top executive managers will be awarded shares or cash in November, and eight of the managers will be redeeming the shares instead of getting cash, despite the significant tax implications.
Rushton told Business Day that management’s decision to vest its shares over cash, despite the tax implications, is “a clear demonstration how confident the management team is in the long-term future of company”.
Logan and Distell disagree on how the CEO and senior management pay should be measured, so that pay reflects how well or poorly the company is doing. Distell has changed its pay policy to be more performance-based for the new financial year.
According to Distell spokesman Frank Ford, 14 out 15 major shareholders’ investment managers are happy with the metric it is using to measure executive pay and to base it on company performance.
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