Woolworths tailors bonuses
• Long-term incentives will be less reliant on share-price performance
Woolworths Holdings’s decision to reduce the weighting of total shareholder return in calculating long-term incentives for its executives has sparked fears that the executives are not expecting a recovery in the share price.
Woolworths Holdings’ decision to reduce the weighting of total shareholder return (TSR) in calculating long-term incentives for its executives has sparked fears that the executives are not expecting a recovery in the share price.
The retail group’s justreleased annual report reveals the TSR weighting used to measure performance conditions for the performance share plan (PSP) has been cut from 50% to 20% and return on capital employed increased to 30%.
This change will make the awarding of long-term bonuses less reliant on share price performance. The share price has been on a steeply downward trajectory since late 2015. The weighting of headline earnings per share remains at 50%.
TSR calculates dividend payments and changes in the share price. The steady fall in the share price since it peaked at more than R100 in late 2015 and the below-target headline earnings in financial 2017 led to payouts on long-term incentives being reduced in 2016. In addition, none of the executive directors got short-term performance bonuses because of the year’s poor profit performance.
But CEO Ian Moir still managed to bag a total remuneration package of R34.7m. His total guaranteed pay of R18.8m was boosted by a retention payment worth R15.4m. Moir’s total package for 2017 is down 35% on the R53.7m he secured in 2016.
Adjusted headline earnings per share in 2017 were 420.8c, almost 12% below the target set for the vesting of long-term incentives. The total shareholder return was just 4%, marginally above the lower quartile of Woolworth’s peer group.
The remuneration committee explained that the change to the weighting was meant to bring it “more in line with market practice among companies similar in size and industry”. It said shareholders had expressed support for a strong weighting for return on capital “in line with international trends”.
One institutional shareholder, who did not want to be named, expressed surprise at the change and said it suggested management feared the share price would continue to underperform. Asief Mohamed at Aeon Investment Management, said it was disconcerting to make this sort of change when Woolworths was going through such challenging times.
Just more than 30% of shareholders voted against Woolworths’ remuneration policy at the 2016 annual meeting.
In his report as chairman of the remuneration committee, Tom Boardman said during engagement with shareholders that concern had been raised about one-off increases in guaranteed pay for Moir.
“This payment was a one-off event which was necessary to calibrate his remuneration to the market,” he said. In 2016, Moir’s remuneration included a retention award of R18.8m.
Despite the dismal performance during financial 2017, Boardman said his committee was satisfied the remuneration policy had achieved its aims.
“The committee remains confident that the group’s remuneration philosophy and policies are aligned to its strategy and have contributed to the group’s growth and resilience.”
In his group chairman report, Simon Susman said: “The deeply concerning political and economic landscape in SA, the tightening consumer environment in Australia and the migration of David Jones into our world, have each been sizeable challenges in their own right.”