FirstRand also overhauls pay
PUSHBACK: RESOLUTIONS ON REMUNERATION FAILED TO BE APPROVED BY SHAREHOLDERS
Group has always ‘ensured that management has never done better than shareholders’ – chair.
Pushback from shareholders at last year’s AGM, where both non-binding resolutions on remuneration failed to be approved, seems to have caught FirstRand off guard.
Both resolutions received votes in favour just under the 75% threshold. This, says FirstRand chair Roger Jardine, “gave us cause for some deep introspection”.
“I have always believed that the group’s remuneration practices were well aligned to shareholders, in that we ensured that management has never done better than shareholders.”
The group overhauled its remuneration report this year.
Its follow-up call with shareholders on January 31 was attended by those representing a significant 38.58% shareholding.
During this call, hosted by Jardine and chair of the board’s remuneration committee Grant Gelink, several concerns were raised:
The link between performance and variable pay (short-term incentives) is not clear.
Annual bonuses/short-term incentives (STIs) are more material than long-term incentive (LTI) awards, leading to a perception that short-term performance is favoured.
The group does not reference total shareholder return as a performance metric.
LTI targets are not “stretch” enough, are too simplistic and do not cover holistic performance.
Remuneration committee discretion regarding LTI vesting was questioned.
Cliff vesting (either 0% or 100%) of the LTI awards was questioned, with some shareholders expressing the view that a proportionate or pro rata (graded) vesting should be applied.
No differentiation across management levels for LTI vesting conditions.
Gelink says the remuneration committee (Remco) “believes that the changes implemented, and the improved disclosure in this report, substantially address these concerns”.
“Additional disclosure of executive director and prescribed officer performance metrics, which formed the basis for its considerations in determining annual bonuses” are provided in this year’s report.
The metrics used for CEO Alan Pullinger, COO Mary Vilakazi and group financial director Harry Kellan are normalised earnings growth, return on equity, net income after capital charge, growth in net asset value and dividend per share growth.
Detailed financial and operational metrics are provided for each of the prescribed officers (FNB CEO Jacques Celliers, Wesbank CEO Chris de Kock, RMB CEO James Formby and Aldermore CEO Phillip Monks).
“Remco acknowledges that the appropriate mix of STI and LTI is key to shareholder alignment and is proactively reviewing and incrementally adjusting the mix to achieve outcomes anchored to long-term performance.”
It argues that a “movement in share price cannot always be correlated to [the] strategic efforts of management, and therefore Remco believes that it is inappropriate to drive management behaviour through setting performance targets against the share price [which is a significant component of total shareholder return]”.
Following feedback from shareholders, the deferred portion of short-term incentives for executive directors and prescribed officers has been extended to “up to 36 months”.
Tarrant works at YFM