Australia’s biggest funeral services provider, InvoCare, joined a rather infamous club on Friday when it pulled a remuneration resolution on the morning of its AGM rather than face the ignominy of formal defeat.
InvoCare CEO Andrew Smith did a good job over his six years in charge, but when he and the board jointly decided not to renew his contract last year, it automatically triggered the granting of $1.46 million worth of long-term incentive (LTI) shares.
Talk about perverse incentives.
Smith had two paths to LTI riches. The first was to stick around under a new contract and achieve all his KPIs. The second was to somehow not be rehired.
Bizarrely, $306,000 of these LTI shares were only granted after it was announced that he would be leaving the company. In other words, they were quickly turned into a rather short-term incentive payout that only vested because of the exit.
All of this was carefully analysed by proxy advisers and their institutional clients, so it was no surprise that when proxy voting closed 48 hours before the meeting, there were 41 million votes against the $1.46 million payout, and only 15 million in favour. Why should shareholders give away money they don’t have to, especially when the CEO in question already owns almost $4 million worth of stock?
However, we only know this voting data after chairman Richard Fisher was challenged three times at the AGM to release it.
At first he refused, to try to avoid “embarrassment”.
The original InvoCare release on the morning of the AGM just noted that resolution six had been withdrawn because “concerns have been expressed by various stakeholders and larger shareholders”.
It should have stated that it was heading for defeat, with 73% of directed proxies opposing the payout.
However, despite grudgingly informing shareholders of the miserable 27% “yes” vote at the meeting, InvoCare made no mention of the proxy votes on resolution six when it announced the voting results to the ASX on Friday afternoon.
Remarkably, the InvoCare board is proposing to come back with a new payout offer for Smith, and may even call an extraordinary general meeting (EGM) to approve it.
At least they are not following the appalling example set by OZ Minerals in 2008, when 57% of proxies rejected a $10.7 million equity payout to outgoing CEO Owen Hegarty. The board responded by instead giving Hegarty, now one of Twiggy’s Fortescue Metals directors, an ex gratia $8.4 million cash termination payout, which didn’t require shareholder approval.
Interestingly, new InvoCare CEO Martin Earp has the same automatic LTI-vesting clause on non-renewal of his contract, so the board may want to fix this issue pronto.
Last minute cancellations of corporate votes happen all too often on rejected resolutions, but thankfully it can’t be done with remuneration report votes. (InvoCare went very close to a first strike on Friday.)
The result is that the record shows the candidate withdrew, or the pay request was withdrawn, rather than being formally defeated in a democratic process.
Here are 10 other notable examples of resolutions being withdrawn rather than defeated:
David Clarke — AMP: resigned as a director ahead of defeat at the 2009 AGM, triggered by the huge losses at Allco Finance Group, where he was CEO.
Peter Cassidy –– Hills Motorway: resigned the day before the 2004 AGM after he saw the proxies were against him.
Peter Kerr — Tattersall’s: not a good idea for a director to sue his own company for a huge payout. Resigned just before the 2005 AGM, when proxies were against him.
Rodney Gilmour — Cabcharge: resigned on the morning of the 2014 AGM after the proxies were against him. He was a mate of chairman Russell Balding, and a former consultant to the company when shareholders wanted genuine independent directors.
Tabcorp: options grant to CEO Matthew Slatter was withdrawn before the 2006 AGM after shareholders made it known it would be defeated because the hurdles were too low.
Suncorp: constitutional change on board size was defeated so it wasn’t put to the 2013 AGM but at least the proxy votes were released to the ASX.
Orica: constitutional change reducing board size was smashed on the proxies, which were disclosed, so it was withdrawn before the 2010 AGM to avoid a formal defeat.
Rio Tinto: a proposed constitutional change to limit class actions in the US was rolled by shareholders, causing an embarrassing withdrawal at the Melbourne AGM in 2006 as can seen
Fairfax: withdrew a proposed change to its constitution regarding proportional takeovers in 2001 but the losing proxy count was still released. It was a special resolution requiring 75% approval and Fairfax only had 64.5% of the proxies in favour.
Harvey Norman: called an EGM in 2010 to issue 17.5 million options at market prices to a range of executives with very modest performance hurdles, effectively replacing an earlier out-of-the-money scheme. Was cancelled with this terse one-paragraph statement from executive chairman Gerry Harvey when defeat became apparent as the proxies rolled in.