Woolworths execs coin it despite the slump
No bonuses, but top executives score from allocations despite destruction of shareholder wealth
Woolworths’ shareholders might take comfort from knowing that none of the group’s executive directors or senior executives received performance bonuses for last year — one of the worst in the group’s history.
It was a year in which the board was forced to take a hefty R7bn writedown of the struggling Australian subsidiary David Jones, and report a 13% drop in adjusted headline earnings. Shareholders looked on as the share price drifted from R62 to R55 during the year. After the release of the results for the year to June, the share has slid to R47.55 — less than half the peak it reached after the 2015 purchase of the Australian department store for R21.5bn.
Despite the absence of 2018 bonuses, CEO Ian Moir, who drove the ill-fated Australian acquisition, still managed to pick up total remuneration of R30.5m. His total guaranteed pay of R19m was lifted by the vesting of shares that had been awarded in terms of previous years’ performances. There was also R4.5m of dividend payments received on unvested shares. So, unlike most Woolworths’ shareholders, 2018 wasn’t too bad for Moir. And while neither he nor his colleagues received performance bonuses, they will have taken some consolation from the one-off allocation of a chunk of shares that were awarded to ensure the top executives are motivated to "deliver sustainable returns for shareholders" over the next three years.
Moir’s allocation looked particularly generous with a face value of R28.5m, but he will only take ownership of them if certain performance conditions are met between now and 2020. Considerably less generous awards were made to finance director Reeza Isaacs (R2.6m), COO Sam Ngumeni (R2.9m) and head of SA operations Zyda Rylands (R3.5m).
Moir’s generous allocation follows the R15m retention bonus he was awarded in 2017 — another year of value destruction for Woolworths’ shareholders.
Tom Boardman, chair of Woolworths’ remuneration committee, explained to one irritated institutional shareholder at last year’s AGM that the payment was in line with the remuneration policy and was "fair and appropriate".
The remuneration committee has, rightly, made a considerable effort to explain to shareholders that long-term incentives, which include a target for return on capital employed, have been adjusted to ensure that none of the executive directors and senior executives inadvertently benefits from the R7bn write-off.
"It would be inappropriate for the executive directors to benefit from a reduced return on capital employed while shareholders have experienced a significant loss of value," said Boardman.
Though many of the numbers contained in the remuneration report might generate some heated debate, its presentation is streets ahead of most JSE-listed companies. It manages to be clear and succinct without neglecting important details. Particularly useful is the description of the changes to the remuneration policy for 2019 and a brief explanation for each change.
Plans to drop total shareholder return as a performance condition and replace it with cash flow appear to have been prompted by input from shareholders. Given the possibility that the share price has bottomed, or is close to it, this change might not suit the executives, which makes it all the more welcome.
In light of recommendations from the recent jobs summit, Woolworths’ disclosure on executive pay in the context of overall employee remuneration could provide a useful reference for other listed companies.
Not least because it highlights one critical problem with comparisons between "executives" and "the workers" – these comparisons focus on total guaranteed pay (TGP). For most workers this is all the remuneration they get; for executives, TGP generally represents only one-third of annual remuneration – unless they’re Woolworths’ executives and have just overseen a huge destruction of shareholder wealth.