Revealing performance anxiety at Myer

Have CEO Bernie Brookes and his top team at Myer lost heart? A remarkable reversal of remuneration policy at the department store group sends the worst possible signal to a shareholder base already disaffected with a stock that has failed on a variety of measures.

While shareholders are left to fend for themselves with a share price less than half the IPO price of $4.10, Myer's top brass are set to peel back the profit performance element of their pay package while lifting the base salary component... it's a move that sandbags the take-home pay of the circle around Brookes, who have hardly covered themselves in glory over the last years.

Moreover, in a move that arguably confirms the teams' inability to ever make the returns once promised, under new plans Myer's profit will be a minority consideration in performance as the team's short-term incentives are linked to metrics where sales targets represent 40 per cent and a nebulous concept relating to the success of its ‘omni-channel' strategy represents another 20 per cent.

The Myer annual report spends endless pages earnestly explaining the need for the changes but the arguments for paying Myer's top team more guaranteed income are less than convincing and disquiet with the move are set to surface at the company's AGM, scheduled for December 7.

Here's what is wrong:

– Myer says the move is necessary to retain its top team, but there is slim evidence any rival retailers are trying to ‘poach' from management ranks.

– Chief executive Brookes – who is also the ninth largest shareholder in Myer – booked a 4 per cent pay rise in the last reporting period while profits fell 14 per cent. (The new plan is for senior executives, it excluded the CEO.)

– And least convincingly of all, Myer says its remuneration consultant Mercer believes it should keep up with its ‘comparators' (ie relevant companies) in similar areas.

In fact an examination of Myer's comparators shows just how far from reality the elaborate game of executive remuneration has drifted: Named in the list of Myer comparators are Flight Centre, Air New Zealand and motor dealer AP Eagers.

Surely the peer group for Myer is solely department stores – David Jones, Harvey Norman, etc.

If indeed Myer was simply measured against other domestic department store groups on a stock price basis it is well behind: Myer's price earnings ratio for example, at 8 times, rates very poorly against David Jones on 13 times or even struggling Harvey Norman which remains on 12 times.

There are also arguments canvassed that the new remuneration regime paves the way for the looming exit of Brookes (due to leave in 2014). But what are the chances institutional shareholders – who have been remarkably quiet about the new executive pay scheme – would support an insider being elevated to the top post when the time comes?

In fact the one exit we may reasonably expect from Myer after this move is the remuneration consultants. In the strangest move of all, having received the green light from Mercer consultants to put through these very unimpressive changes, earlier this month Myer quietly put its remuneration consultancy contract out to tender.