Executive pay key focus in AGM season
In the latest set of accounts for the 2013 year, most REIT senior managers received pay rises, though some were more modest than the previous years, while others attracted commentary for being very high.
Lend Lease has one strike and restructured the package for chief executive Steve McCann, while Charter Hall has updated the contracts for the joint managing directors, David Harrison and David Southon.
Investors have said they will focus on the remuneration reports in the AGM season, even though the REIT sector had one of its best-performing periods for some time, up to the end of reporting season in August.
The weakening office market, concerns about the bond rates and ongoing takeover speculation between Dexus Property and Commonwealth Property has dampened REIT returns on the sharemarket in the past few weeks.
The managing director of Maxim Asset Management, Winston Sammut, said noting the new employment arrangements proposed for Charter Hall's joint managing directors, it would be most interesting to see how investors and the various proxy houses will approach the upcoming AGMs, and the vote as to how the remuneration packages will pan out.
"No doubt, of particular interest given the 'three strikes' policy now in place, will be the outcome for a number of companies which include Lend Lease," Mr Sammut said.
Under the Charter Hall contract, Mr Harrison and Mr Southon have entered into new employment contracts providing for much longer notice periods and the introduction of restraint provisions.
The contracts, if approved by security-holders, will include a one-off special three-year long-term incentive award for each managing director of a $30,000 increase in their fixed remuneration for 2014 to $1.08 million.
There will also be a target short-term incentive opportunity from the 2014 financial year of $660,000 for Mr Southon and $760,000 for Mr Harrison. The actual short-term incentive outcome will depend upon Charter Hall Group's and the joint managing directors' performance during the year. Two thirds of any short-term incentive for the 2014 financial year will be delivered in cash and the balance in deferred performance rights.
The two directors have also seen the current three-month notice period for resigning being extended to 12 months - if they are sacked - and six months if they resign.
However, for either director a new "non compete" clause has been added for the first time whereby if they leave they cannot go to another competitor for a period of 12 months.
In August Lend Lease renewed Mr McCann's contract and his remuneration package had been restructured to increase the emphasis on long-term incentives, with a related reduction in short-term incentives. The new deal provides for fixed remuneration of $2.03 million, which included superannuation and salary-sacrifice items.
Frequently Asked Questions about this Article…
Executive pay is in the spotlight because shareholders are reviewing remuneration reports across the REIT sector, especially after last year’s shareholder pushback on high salaries. Investors and proxy houses will scrutinise pay packages to decide votes at annual general meetings.
The article highlights Lend Lease and Charter Hall as being under particular scrutiny. It also mentions broader market context involving Dexus Property and Commonwealth Property and comments from Winston Sammut of Maxim Asset Management.
Charter Hall proposed new contracts that extend notice periods (three months to 12 months if dismissed, six months if they resign), introduce a 12‑month non‑compete clause, add restraint provisions, include a one‑off three‑year long‑term incentive award, and increase fixed pay and short‑term incentive opportunities.
If approved, each managing director would see fixed remuneration rise by $30,000 to $1.08 million for 2014. Target short‑term incentives are $660,000 for Mr Southon and $760,000 for Mr Harrison, with actual outcomes dependent on performance.
For the 2014 financial year two‑thirds of any short‑term incentive will be paid in cash and the remaining one‑third delivered as deferred performance rights.
Lend Lease renewed Steve McCann’s contract and restructured his package to emphasise long‑term incentives and reduce short‑term incentives. His fixed remuneration under the new deal is $2.03 million (including superannuation and salary‑sacrifice items). Lend Lease also carries one strike from last year, making votes this AGM season potentially significant under the 'three strikes' policy.
Although the REIT sector performed well through reporting season in August, recent weakening in the office market, concerns about bond rates and takeover speculation (notably between Dexus Property and Commonwealth Property) have dampened REIT sharemarket returns, increasing investor sensitivity to executive remuneration.
Investors should look at changes to incentive structures (short‑ vs long‑term incentives), notice and restraint clauses, any one‑off awards, whether pay increases are linked to performance, and the potential impact of existing strikes under the 'three strikes' policy. Proxy house recommendations and commentary from fund managers can also guide voting decisions.
Call 1300 880 160
Start a chat
Schedule a call
