This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Pay at Weir, Reckitt-Benckiser and WPP

Yesterday saw Weir Group Plc defeated on pay. Both the Remuneration Report and Remuneration Policy resolutions were lost with 73% and 70% of votes AGAINST them respectively. This is a very damning blow to this FTSE-250 company which makes pumps for the mining and oil markets.

The company subsequently issued a grovelling apologia for the proposals they had tried to implement which included a “stock awards” scheme that was based on share price performance rather than more direct performance criteria (such as profits, cash flow, etc). Needless to point out that Weir has been badly hit by the decline in its customers demands for its products with the result that the share price bottomed out in January of this year at 820p. It’s been recovering since so this would undoubtedly be a good time to rebase an incentive scheme focussed on share price would it not?

Even institutional investors apparently saw through that although they seem to have expressed their criticism in more technical terms such as not being compliant with best practice in the UK.

Now this writer holds a few shares in Weir and yes I voted against the remuneration resolutions. But I did so solely on the ground that the past and proposed pay structures were way too complex – indeed just like most FTSE companies. In addition this business had a quite dire year in terms of financial performance, after a long track record of good returns and growth. Sales substantially down, profits wiped out and downsizing of staff and operations taking place almost everywhere. But the CEO received a “total remuneration” figure of £1.06 million for the year. That is less than the £1.45 million in the prior year which might surely show that the previous LTIP scheme was not so daft after all. But if I had been running the business I would have given a moral lead by slashing my pay to a fraction of what it was in such tough market conditions.

Yes pay in public companies is broken and we really do need a revolution in how pay is set. It needs to be simplified, reduced in magnitude and set by people who are not beholden to their fellow directors. Indeed I would go so far as to say Remuneration Consultants should also be barred because they have contributed to both the complexity and racheting up of pay in recent years. These are my personal opinions of course, rather than ShareSoc’s but sometimes one has to stand up and be counted on matters of principle. And too much pay for the fat cats at the top of public companies is corrosive to the body politic.

On a similar theme, ShareSoc is advising investors in Reckitt Benckiser to vote against their remuneration resolutions at the forthcoming AGM. We have issued a press release to that effect which you can read here: but the key points are:

  • The remuneration of the CEO Rakesh Kapoor is indefensibly high (£23 million in 2015, £56 million since his appointment).
  • This level of remuneration seems even more egregious when viewed against the background of Kapoor’s potential future equity incentives (his unexercised 1.8 million options have £34 million gains to date and his LTIPs would currently be worth £49 million if fully vested).
  • Share buybacks, which impact the EPS performance condition, raise further concerns.
  • The constitution of the Remuneration Committee, the majority of whom are themselves serving CEOs, is inappropriate and may favour generous awards.

Meanwhile I see Martin Sorrell of WPP has been publicly defending his pay – about £70 million and the highest in the FTSE-100. He said “We started this company 31 years ago with two people in one room” and “It is now 100,000 people in 112 countries and the largest advertising and marketing company in the world”. There is no disputing it has grown to be large, but is its financial performance so brilliant? Compound annual growth in sales in the last six years is only 5.6% according to Stockopedia and Return on Assets was only 4.2% last year. Earnings growth looks much more positive, but free cash flow per share has been stagnant at minus 0.2%. This surely indicates that this company may be good at massaging its financial numbers rather than generating money for investors. In other words it might be more a case of Mr Sorrell telling a good story about his empire building so as to justify his high pay than his real business acumen.

ShareSoc will be saying more on remuneration at WPP in due course, but you can guess what it is likely to be.

Roger Lawson

One comment
  1. Stephen Burke says:

    I’m an RB shareholder and it’s hard to deny that the share price performance has been very good. However, a lot of that seems to be down to multiple expansion, and I just reduced my holding because the P/E seems to have got rather extreme. I wonder what would happen to the remuneration if the P/E were to fall back to, say, 15? I also find myself wondering just how hard it is to run a stable business selling basic products, even if it is a multinational.

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