Pick n Pay: Presented excellent interim results in October. Picture: Bloomberg/Waldo Swiegers
Pick n Pay: Presented excellent interim results in October. Picture: Bloomberg/Waldo Swiegers

Without a significant and sustained hike in the Pick n Pay share price in the next few days group CEO Richard Brasher can wave goodbye to 1-million of his share options.

The five-year term of the options, which were granted to Brasher when he was appointed CEO in 2012, were extended for 12 months when they failed to meet the vesting condition in November 2017.

The condition was that the weighted average share price for the 20 days to November 14 2017 had to be at least R68.03.

Remuneration committee chair Hugh Herman says the committee made the decision to grant a 12-month extension at a special meeting in September 2017.

In his 2018 report, Herman says Brasher has successfully implemented the strategic action needed to "reset the long-term earnings trajectory of the group".

But the prevailing political and economic climate hit sentiment in the local equities market, says Herman. He also believes the share price has been hit by the impact of the R200m cost of the voluntary severance programme in the first half of 2018.

All in all, Herman and his committee say they were justified in pushing out the vesting date by 12 months.

They presumably assumed once the earnings trajectory was back on an upward track, market sentiment would lift the share to at least the required vesting level.

What they evidently hadn’t planned for was a fundamental rerating of the local equity market as foreign investors sought shelter from emerging markets.

So when Brasher announced an excellent set of interim results early in October the market considered that this did little more than justify the high rating the share already enjoyed.

The results may have halted the pace of decline of the previous six months, but with just days to go it’s difficult to see what would bump the price up to the levels needed for the options to vest.

Herman told shareholders at the group’s AGM in July that the extension was a good balance between the interests of the executive and those of the shareholders.

"But I give you my assurance we won’t do it again … while I’m chair of the remuneration committee," said Herman, who after 42 years is still described as an independent director.

Fortunately for Brasher, the 1-million share options are only part of his share rewards. He has another 1-million options with no conditions attached. In addition, the performance conditions attached to the generous forfeitable share awards have been comfortably attained.

And though there was no short-term bonus paid for 2018, the remuneration committee used its discretion to make a few generous cash awards.

The past efforts of Brasher and his management team should bring about the resumption of annual bonuses from here on.

With the long-term earnings trajectory back on course, the major threat to executive remuneration and the share price at this now cash-rich retailer would be an ill-considered acquisition.

Brasher’s comments on the group’s strong cash position at the recent analysts’ presentation prompted inevitable questions about possible acquisitions. "If things come along that we like the look of and they’re appropriately priced and complement our business, at least we can give it serious consideration," said Brasher to a collection of analysts who have recently spent a lot of time trawling through the multibillion-rand losses suffered by Woolworths’ ill-considered international acquisitions.

Even Shoprite’s African deals are taking some strain.

Given the not-too-distant memory of Pick n Pay’s own ill-fated Australian venture, shareholders will have taken comfort from Brasher’s assurance that the cash is not burning a hole in the company’s pocket. "We don’t have to spend it," he says.

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