Selby-based power producer Drax Group plc (LON:DRX) faced some strong opposition on resolutions related to the proposed Directors’ Remuneration Policy at the company’s annual general meeting. Changes suggested to the existing policy, which was approved by shareholders in 2014, included introducing Performance Share Plan (PSP) and Deferred Share Plan (DSP) to achieve a better balance between performance and reward by delinking annual bonus from long-term incentive plan.
While the new policy also includes other changes that seem to align performance with pay, such as a two-year holding period after three years of the vesting period before executives can liquidate stock-awards received under long-term incentive plan, the new policy also removes a number of key restrictions on base salary — proposed to remove restrictions on an executive director’s base salary under current policy that doesn’t allow a pay hike of more than 5% in excess of the increase in the average employee salary.
The proposal received a 77% support when shareholders voted, but 23% opposing the policy is a significant number in the light of the fact that other proposals received an approval rating of 96% or more. Other related resolution—annual statement to shareholders by the Chairman of the Remuneration Committee—that saw a nearly 33% rejection rate from shareholders included a 92% bonus raise for CEO Dorothy Thompson, compared to 46% received by the average UK employee.
While that would give her an over 25% overall pay-hike for 2016, more eyebrows were raised on a nearly £1.3 million stock-based incentive, vesting in 2019, for the company CFO Will Gardiner under the company’s Bonus Matching Plan, which has now become Performance Share Plan. Will Gardiner’s total pay for 2016 stood at £971k, which included a 123% bonus on his base salary of £390k.
DRX shares are up nearly 10% over the past year; however, the company’s 50% (of earnings excluding one-offs) payout policy hurt investors as core profits reduced by nearly a third between 2014 and 2016. SWS check for a reasonable CEO-pay based on EPS performance and the company’s market capitalization doesn’t indicate that Ms Thompson needed such bonus. Although it can’t be denied that DRX needs a lot more flexibility in retaining top-talent due to a competitive environment, the company’s shareholder returns hardly support the recent executive pay-hikes.
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