Investors should restrict ire over pay deals
Talk about picking your moment. Provoking a pay row with your shareholders in the middle of a General Election campaign in which the Labour party has zeroed in on income inequality looks crass — so Bovis Homes Group’s executives shouldn’t be surprised if a few arrows are fired in their direction by would-be MPs early next week.
Bovis’s enlarged incentives look suspiciously like a case of bosses being rewarded simply for doing a deal — its £1.1bn takeover of Galliford Try’s housebuilding arm.
At a febrile time in the executive pay debate, though, not every target looks so well-judged.
Take Whitbread, the Premier Inn owner, which faces scrutiny at next week’s extraordinary general meeting to approve a remuneration policy containing a chunk of restricted stock for executive directors.
The proxy adviser Glass Lewis is endorsing the move, but rival ISS has recommended that shareholders vote against it because the discount to Whitbread’s existing long-term incentive plan (Ltip) is inadequate.
ISS’s judgement looks flawed, though. Boss Alison Brittain’s overall pay, which is already at the lower end of her peer group, is coming down under the proposed policy — both through a reduction in her pension allowance and Ltip.
Investors who want Whitbread to keep her following the bumper sale of Costa Coffee to the Coca-Cola Company are unhappy about that.
I also understand that Whitbread is proposing the adoption of restricted stock at the explicit request of some of its major shareholders.
The long-term deployment of capital required to take new hotels from conception to operation makes conventional three-year Ltips unsuited to its business model.
Restricted stock removes the invidious problem of retaining executives who feel underpaid during difficult periods, while reducing the risk of outsized payouts at other times.
“We are very supportive of restricted shares as aligning management to focus on the long-term sustainable growth of the company, through building a significant shareholding over time — and in preference to complex Ltip scorecards with multiple objectives,” said Richard Buxton, the head of UK equities at Merian Global Investors.
“But restricted share schemes have to be part of a genuine change of mindset towards long-term incentives and not simply a means to de-risk existing levels of remuneration.”
I understand that other blue-chip companies are consulting with investors about issuing restricted stock in their forthcoming pay policies.
Most institutions agree that the existing framework of Ltips has produced perennially unsatisfactory results. At Whitbread and elsewhere, restricted stock’s time has come.
A secure legacy at G4S?
Like a frantic bout of festive house-cleaning ahead of an unwanted visit from judgemental in-laws, there are plenty of FTSE 350 chair(men) with a sudden need to spruce up their legacy.
The inclusion of chairs within guidance that they cease after nine years as a director to be deemed independent under the corporate governance code is affecting succession planning at scores of companies.
One grandee keen to get his spring cleaning completed in time is John Connolly, who is due to hit the nine-year mark at G4S, the security company, in a little over 18 months.
G4S has announced plans to spin off its cash-handling group, either through a demerger or a sale, leaving the group as a pure security services business.
Analysts and investors have responded to the plans with equanimity, and I understand that Brinks, the US-listed cash security group, is now edging closer to a formal offer for its G4S-owned peer.
G4S faces challenges, though. Norway’s sovereign wealth fund has said it will divest its holding in the company because of concerns about alleged human rights violations in the Middle East.
Connolly is also likely to have to contemplate further executive changes before his time is up, given that Ashley Almanza, the chief executive, has already surpassed the average tenure of a FTSE boss.
IoD’s audit remedy
A spying scandal involving its director-general and the embroilment of its chairwoman in a racism row: for a while last year, the idea of the Institute of Directors (IoD) lecturing others on corporate governance seemed laughable.
With new brooms in place, the bosses’ union has begun to restore its credibility.
In its response to Sir Donald Brydon’s review examining the purpose of audit, the IoD argues that accountants have become disconnected from their wider economic purpose.
“The audit profession has sought to frame audit quality in terms of complying with increasingly complex and opaque accounting standards rather than with regard to the underlying reality,” it said.
The IoD’s solution? To widen the future audit process to encompass independent challenge on non-financial reporting and environmental, social and corporat governance issues.
It is hard to see, though, how regulators’ current preference for joint audits or a full break-up of the big four auditors are the best way of achieving that goal.
Mark Kleinman is City Editor at Sky News
Main image: Getty