United they stood, well almost. Last week, shareholders in contractor United Group vented their anger at the company’s generous pay practices with the majority of shares being voted against the company remuneration report resolution. The resolution was only passed after “open proxies” were voted in favour of the largesse by the board.
In total, 39.8 million shares voted against the resolution, compared with only 37.8 million in favour. United shareholders were furious at the 30% pay rise received by CEO Richard Leupen last year. While shareholders witnessed the United share price slump by 16% during the year, Leupen’s short-term cash bonus leapt from $1.4 million to $2.3 million.
The United board also infuriated governance experts by agreeing to pay Leupen a $500,000 annual “succession incentive”. That generous stipend is based upon Leupen:
- developing strength and depth of senior management;
- assisting the board finding a successor; and
- providing annual and half-year updates upon succession planning.
Old-fashioned types would have thought that those tasks, such as updating the board, would fall squarely within the traditional role of a CEO, especially one who is already paid upwards of $4 million per year. Apparently, not the United board, which appears to happily dole out shareholder monies to its CEO.
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In defending United’s remuneration practices, embattled chairman Trevor Rowe told the Financial Review that the board “had received advice from independent consultant John Egan that … criticism was unwarranted”.
Admittedly, asking a remuneration consultant for their view on the reasonableness of a CEO’s pay is much like asking a pimp’s views on the reasonableness of legalising street prostitution.
That a remuneration consultant would approve of ostensibly excessive pay practices as reasonable is hardly a surprise, especially when that very consultant was being paid by the people whose pay he was assessing. (Warren Buffett once dubbed such consultants “Ratchet, Ratchet & Bingo” due to their largely inflationary effect on executive pay). The choice of Egan was also convenient. Egan appears to have well-formed views on executive remuneration. In 1999, Egan wrote an article in a leading broadsheet newspaper in which he “made a plea on behalf of corporate executives, contrasting what he viewed as the public’s reluctance to properly reward senior executives while being more than happy to shower riches on sports stars and entertainers”.
The repudiation by shareholders of United’s pay practices last week would have caused a spill of the board under the two strikes rule proposed by the Productivity Commission. Last year, United shareholders also revolted, with 37% voting against the report. (A spill of the board would have been the last thing that United chairman Trevor Rowe would have wanted. The embattled former chairman of BrisConnections was not up for election at United Group this year).
The United Group backlash comes only days after 43% of Qantas votes rejected the airline’s remuneration practices. It us understood that the Qantas resolution got over the line after several weeks of intense lobbying of institutional holders by senior board members. It believed that about 95% of actual shareholders rejected the airlines pay policies, which led to former CEO Geoff Dixon receiving $10.7 million for five months’ work.