UK's Local Authority Pension Fund Forum (LAPFF) has hit out against Boots by advising its members to vote against a new executive share option scheme being proposed at the retailer's AGM next Thursday.
According to the forum, the scheme’s performance targets are unchallenging. It said that under the proposed scheme, awards of up to 200% of salary may be made, which are exercisable for earnings per share (EPS) growth of 3% a year over three years.
The LAPFF said the new option scheme is to be put in place on top of an existing long-term incentive plan which already awards shares worth up to 125% of salary.
Councillor Bob Sowman, LAPFF chair and chair of the £5bn West Yorkshire Pension Fund, said: “Growth of 3% a year is hardly an ambitious target. We in the forum want to see companies setting stretching performance targets which only reward executives for superior performance. This sort of scheme is sending the wrong signals to executives and is simply unacceptable. Shareholders should vote no”.
The LAPFF’s guidelines oppose share schemes where options become exercisable for earnings growth of 3% per annum or less or which start to vest at median point for more than 40% of salary.
Commenting on the LAPFF’s attack, head of group external affairs at Boots, Martin Wakeling explained that the forum had incorrectly presented the EPS growth of 3% including inflation whereas Boots included retail prices and 3% for a period of three years. He added that the LAPFF’s reference to awards of up to 200% of salary was incorrect in so far as the incentive scheme proposed awards of 100% of salary.
“Directors have to buy options as part of the incentive scheme,” said Wakeling.
“Part of the benefit directors get from these options is proportionately the same as what other shareholders would get in accordance with the appreciation of share price.”
Wakeling added that an independent evaluation of senior executives revealed that long term bonus schemes are expected to deliver 55% of base salary. “This review of senior management remuneration at Boots was undertaken by independent advisor, Towers Perrin, who identified a shortfall against the current market rate and hence the share option scheme,” he said.
“The total remuneration package is designed to recruit, retain and motivate the best managers in industry and is approved by the board remuneration committee made up of non-executive directors.”
Last Friday the LAPFF severely criticised the new executive share incentive scheme at Cable & Wireless’ London AGM .
Councillor Greg Vincent, LAPFF vice-chairman asked how the proposed Incentive Plan 2001 rewards superior performance when 50% of options awarded under it and 40% of performance shares become exercisable for median performance against your comparator group?
Although the question was directed to the chairman on the remuneration committee, Sir Win Bischoff, it was headed off by the company chairman, Sir Ralph Robins.
Commenting after the meeting, Councillor Vincent said: We remain of the view that this scheme is flawed. We hope that the poll shows a high level of opposition to it. We note that other institutional shareholders are opposed to the scheme.
On the handling of the AGM, Councillor Vincent said, It was disappointing that the chairman chose not to take all the questions shareholders wanted to put. It was also outrageous that the proxy votes were displayed prior to the show of hands on each resolution and that the chairman claimed it would be ‘a waste of time’ to call a poll on the resolution. This shows a serious disregard for shareholder democracy
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