Executive remuneration at TFG, owner of more than 30 fashion and homeware retail brands including Markham and @home, has received some support from shareholders after two years of failed votes, with one of the two pay votes passing at the AGM this year.
JSE rules require listed companies to hold two advisory votes on senior executive remuneration at their annual general meetings. If one or both votes fall below the 75% majority, the business must meet unhappy shareholders in the months after the meeting.
TFG held its AGM at its head office in Parow on Thursday and one of the two concurrent pay votes failed to garner 75% support, making it the fourth consecutive year for the failure of at least one of the votes.
Due to the failure, TFG has to meet the dissenting shareholders in the next few months.
In SA, there is little consequence for a repeated failure to get 75% shareholder support on executive pay, other than private meetings around the sometimes prickly matter.
Referring to remuneration votes, Kwanele Ngogela, senior inequality analyst at activist organisation Just Share, said the mandatory votes “as now structured, do not drive meaningful change”.
TFG has kept growing revenue in Australia, UK and SA annually, but both its remuneration votes failed to pass in 2020 and 2021.
Showed improvement
In Australia, the two-strike rule means the remuneration board must step down after two consecutive failures. In SA, there is little consequence if votes do not pass.
Thursday’s AGM voting results showed an improvement, with one of the two votes passing.
In its annual report, TFG, who hired two sets of remuneration consultants, explained the various changes it had made in response to previous criticism from institutional shareholders — who had said there was not enough disclosure on incentive performance targets.
TFG said it had added additional disclosures on executive’s performance targets without disclosing sensitive information.
In response to criticism, TFG has also linked the CEO and CFO bonus pay performance targets to group results and not TFG Africa, which is primarily the SA business. This adjustment is likely to benefit the executives as UK and Australia businesses are recovering well after Covid-19 lockdowns.
Shareholders had complained about CEO Anthony Thunström being allocated shares in 2021 without any performance conditions being attached to them. He had earned R56.5m in 2021, which included a R38m long-term bonus even as the group reported its first-yet loss due to Covid-19 store closures.
In response, TFG said in 2022 no shares were allocated without performance conditions. Thunström earned R34.2m in the 2022 financial year, less than the previous year, but more than the R19m he took home in 2020.
It is also less than the R56.5m that Mr Price CEO Mark Blair earned in 2022.
Pay appropriately
TFG’s annual remuneration report explained it must pay appropriately to attract the best talent in a competitive global market. It said there is an “increasing loss of key SA executives to pursue opportunities” abroad.
It also said “the reality is that talent is increasingly global and mobile ... resulting in the overall market for relevant CEO pay in SA needing to be aligned to international retail levels”.
At the AGM, chair Michael Lewis said all of the seven biggest shareholders had supported both the pay votes. But with one or both remuneration votes failing increasingly frequently, and due to a lack of clarity about who voted against pay and why, some critics say the practice is meaningless.
In some cases, companies struggle to meet dissenting shareholders or the firms make the required changes and still find the votes do not pass.
Aeon chief investment officer Asief Mohamed said the general practice of votes not passing means “we definitely should introduce the ‘two-strike’ rule”.
“We proposed this amendment to the Companies Amendment Bill,” he said. But in meetings at Nedlac, amendments to the Companies Act about pay have been watered down, he said, due to pushback from the business sector.
Delaying changes
“Unless we get an amendment to the two-strike rule we sit with the non-binding resolutions,” he said.
“I know the business lobby is delaying changes to the Companies Act as long as possible.”
Ngogela said the system requires a vote that has consequences, which the current one lacks. “What is required is a robust ‘say on pay’ regime that grants shareholders a binding vote with consequences.
“At best, the current system facilitates what appears to be a largely futile engagement between the company and dissenting shareholders.”
He described meetings after failed votes as “a tick-box exercise”.
When votes do not get the required majority, it is not immediately clear who voted against them and why as some asset managers release their voting decisions months after the AGM.
Ngogela said “while many asset managers do make their voting public, and some also provide rationales for no votes, this usually happens so long after the AGM that it is not useful”.
He criticised the fact asset managers favour private meetings with management rather than transparency about their rationale for voting against pay packages. “It contributes to the sense that this issue recurs every year with no resolution in sight.”
High pay continues to be a challenge globally, and no country has solved the problem, Ngogela said.
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