Governance Watch - February 2021: The controversial use of value creation plans

Future could face shareholder dissent over a proposed new long-term incentive plan at its forthcoming AGM on 10 February. The FSTE 250-listed publishing group has received significant shareholder dissent on remuneration-related resolutions at both its 2020 and 2019 AGMs, indicating ongoing shareholder concerns with remuneration and a potential lack of responsiveness to shareholder dissent.

The remuneration committee is proposing the introduction of a value creation plan (VCP) to replace its existing performance share plan. Under the VCP, one-off units will be awarded to employees which will allow them to share 3.3% of the value created in terms of total shareholder return (TSR), being the growth in Future's market capitalisation plus net equity cashflows to shareholders, over and above a hurdle rate of return of 10% per annum. Future's starting market capitalisation for the hurdle has been set at £1,903m, based on the spot closing price of a share on 30 September 2020 (£19.42). The units will vest in three equal tranches over five years and the aggregate value to be allocated to participants is capped at £95m per tranche. 

The total units to be awarded under each trance is 980,000, of which chief executive Zillah Byng-Thorne will be allocated 140,000 (14.3%) and chief financial officer Rachel Addison 63,000 (6.4%). Accordingly, at full vesting, Byng-Thorne could receive shares worth £13.5m per tranche and £40.7m in total. 

Other value creation plans, such as those seen at Persimmon and Ocado, have resulted in significant shareholder dissent. Future shareholders could have concerns with the size of the potential payout and the applicable performance hurdle. The use of TSR in isolation has the potential to create a disproportionate focus on share price at the possible expense of other aspects of financial performance. Share price performance can also be impacted by factors outside of the executive's control; for example, if the market as a whole recovers post-pandemic, then the executives could receive windfall gains achieved by a shift in the market rather than through the board's actions. 

Shareholders will also note Byng-Thorne's salary has been increased by 21% to £575,000. The remuneration committee state it is the first review of her salary since 2018 and reflects her individual performance and the increase in size and complexity of the group in recent years. Reflecting the level of the increase, the committee has agreed that this salary level will remain fixed for at least the next two years. Notably, a 27.3% salary increase for the chief financial officer was a contributing factor to last year's dissent and shareholders could express concerns over the chief executive's increase this year. 

Thomas Bolger is stewardship team leader at Manifest-Minerva

Annual General Meetings in February