Strike threat keeps lid on top packages
The latest set of accounts for 2012-13 show most real estate investment trust senior managers received pay rises. Some were more modest than past years but others attracted attention for being very high.
Lend Lease has one strike and has restructured the package of chief executive Steve McCann, while Charter Hall on Tuesday updated the contracts of its 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 the reporting season in August.
The weakening office market, concerns about bond rates and continuing takeover speculation between DEXUS Property and Commonwealth Property have dampened REIT returns on the sharemarket in recent weeks.
Maxim Asset Management managing director Winston Sammut said, noting the new employment arrangements proposed for Charter Hall's joint managing directors, it will be most interesting to see how investors and the various proxy houses approach the coming AGMs at which shareholders will 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 three-year long-term incentive award for each managing director of a $30,000 rise in their fixed remuneration for next year to $1.08 million.
There will also be a target short-term incentive (STI) opportunity from the 2013-14 financial year of $660,000 for Mr Southon and $760,000 for Mr Harrison.
The actual STI outcome will depend upon Charter Hall Group's and the managing directors' performance during the year. Two-thirds of any STI for 2013-14 will be delivered in cash and the balance in deferred performance rights.
The managing directors have also had the three-month notice period for resigning extended to 12 months if they are sacked and six months if they resign.
Lend Lease renewed Mr McCann's contract in August and his remuneration package was restructured to increase the emphasis on long-term incentives, with a related reduction in short-term incentives.
Frequently Asked Questions about this Article…
Investors are zeroing in on remuneration reports as the AGM season approaches, especially after some real estate investment trusts (REITs) faced shareholder backlash over high pay last year. Attention is on pay rises in 2012–13, one “strike” against Lend Lease, and contract changes at companies like Charter Hall. Broader sector factors such as a weakening office market, rising bond‑rate concerns and takeover speculation have also dampened recent REIT returns, keeping remuneration under scrutiny.
Charter Hall has proposed new employment contracts for David Harrison and David Southon that include much longer notice periods, the introduction of restraint provisions, a one‑off three‑year long‑term incentive (LTI) award for each managing director, and a $30,000 rise in fixed remuneration to $1.08 million for next year (subject to security‑holder approval).
Under the proposed contracts the target STI opportunity from the 2013–14 financial year is $660,000 for David Southon and $760,000 for David Harrison. The actual STI payout will depend on the Group’s and the managing directors’ performance; two‑thirds of any STI for 2013–14 would be paid in cash and the balance in deferred performance rights.
Lend Lease had one strike after shareholders rejected high remuneration levels. In response the company renewed CEO Steve McCann’s contract in August and restructured his package to increase emphasis on long‑term incentives (LTI) while reducing short‑term incentives (STI).
Those factors have recently dampened REIT returns on the sharemarket despite the sector's strong performance up to the end of the reporting season in August. As a result, investors are more sensitive to governance and pay outcomes at AGMs, making remuneration reports and contract changes more consequential for sentiment.
The article notes that the ‘three strikes’ policy is now in place and makes repeated shareholder rejections of remuneration reports particularly noteworthy. This increased scrutiny means companies like Lend Lease will draw special interest from investors and proxy advisers during the AGM season.
The proposed contracts change the previous three‑month notice arrangement: if a managing director is sacked the notice period would be 12 months, and if they resign the notice period would be six months.
Winston Sammut, managing director of Maxim Asset Management, commented that it will be especially interesting to see how investors and proxy houses approach the coming AGMs given the new employment arrangements at Charter Hall and the broader context of the three‑strikes policy, with companies such as Lend Lease drawing particular interest.
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