About a quarter of Pick n Pay shareholders voted against its executive pay policy, almost triggering a JSE rule that would have required the food retailer to formally take steps to tackle their concerns.
The non-binding vote at the virtual shareholder meeting shines a harsh spotlight on the company and its share price performance and came as Pick n Pay flagged as much as a 50% drop in half-year earnings, citing coronavirus expenses, store closures and voluntary severance package expenses during the lockdown. That sent its shares tumbling more than 5%.
Though the pay policy passed with just over three-quarters of shareholders voting in favour, chair Gareth Ackerman had said he did not expect it to, having received proxy votes a day in advance due to the virtual nature of annual general meetings (AGMs) during lockdown.
The non-binding vote on the remuneration implementation report is a way for shareholders to express unhappiness with directors’ and executives’ pay.
Mehluli Mncube, speaking as a proxy for five undisclosed pension funds, posed eight questions related to the link between executive pay, bonuses and performance targets at the company, which has trailed its closest rival, Shoprite, operationally and in the stock market.
Shares in Pick n Pay have dropped by more than a third so far in 2020, compared with a fall of nearly 10% in Shoprite.
Pick n Pay also had one of the weakest profit margins — or the percentage of sales that is converted into earnings — in the industry at 2.4% in the 2019 financial year, compared with about 4.6% at Shoprite.
Mncube, who has previously spoken out for Sentinel and Eskom pension funds at various AGMs — including in 2014 when he questioned the sustainability of African Bank’s risky lending practices before the bank collapsed under the weight of bad debt — told Business Day shortly after the meeting that there was "not enough transparency" around executive pay and performance targets.
"It becomes difficult to judge their [executive] performance," said Mncube, whose long-standing concern has been Ackerman’s pay.
Mncube said his questions should have been answered publicly as an AGM was a platform to "raise public issues in the public domain".
Ackerman, whose 2020 fees topped R4.6m, compared with R1.2m earned by Shoprite chair Christo Wiese, said the company would directly approach shareholders who voiced dissent over the company’s pay policy.
"We are not going to sweep the concerns under the carpet. We are going to engage directly," Ackerman said. "We acknowledge all the remuneration concerns. We will be giving a detailed report to whoever wants to engage with us."
Under the JSE rules, companies are required to take steps to deal with shareholders’ concerns expressed by the non-binding vote on executive pay but only if more than 25% of investors vote against the policy.
In 2020 Pick n Pay CEO Richard Brasher took home R12.4m as he and the executive team did not receive incentive bonuses, much less than R31.9m he earned in 2019. By contrast, CEO of Woolworths Ian Moir was paid R23m in 2019 and Pieter Engelbrecht, CEO of Shoprite, earned R21.2m.
With performance targets not met, Pick n Pay did not pay short-term bonuses to executives in the most recent financial year and it has put longer-term incentives under review as a result of the coronavirus, as it flagged as much as a 50% drop in half-year profit. It blamed the profit drop on expenses related to the cleaning of stores and closure of its clothing and alcohol chains, and the cost of severance packages for 1,400 workers.
Shane Watkins, chief investment officer of All Weather Capital, whose question about how much it cost the company to buy out employees who voluntarily decided to leave was unanswered in the AGM, told Business Day the lack of information "confused analysts".
"Since they referred to the voluntary severance package as being a reason for the earnings decline, why not come out and quantify the amount?" he said.
"How can shareholders make meaningful conclusions without management providing numbers to accompany commentary? We appreciate some issues are confidential, but the lack of disclosure by the company seems to extend to issues that are not overly sensitive."
Pick n Pay said Watkins asked for financial information that had not been made publicly available. "Our CEO quite simply cannot share sensitive financial information that has not been made available to the whole market," the company said in a statement.
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