As the Fairfax Media AGM rolled out at Melbourne’s Crown casino precinct this morning, it seemed that no one at the top table was particularly keen to talk about this director interest statement lodged with the ASX on August 30.
The filing showed that Fairfax CEO Greg Hywood had reached all the targets set out in his 2013 long-term incentive scheme share grant and the board had decided to settle half of his options by paying him $2.8 million in cash. This was based on 35c for each of the 8 million cancelled options, which had an exercise price of 58c against a market price at the time of 93c.
Since then Fairfax shares have fallen back to 81c last night, and today the stock tanked another 9c to a low of 72c in early trade, after the company unveiled a disappointing trading update that showed the Domain juggernaut had slowed.
Not long after starting out in journalism back in 1989, I remember being impressed with the independent journalism on display at The Australian Financial Review when it did a front-page story exposing the big executive pay packets as the company lurched towards receivership.
Almost 27 years later, it is disappointing to note that equally big rewards going to the company brass today are not being accurately reported by what is left of Fairfax’s business journalists.
The August 30 disclosure just sailed through to the keeper un-reported. It is not clear whether this was a deliberate omission or a reflection of how heavily Fairfax has slashed its editorial budgets in order to reach these large bonus payments for the executive team. However, the board’s disclosure practices are certainly not helping.
Part of the problem is new Fairfax chairman Nick Falloon, who himself was extremely well paid when chairing Ten Network Holdings, doesn’t seem to believe in comprehensive remuneration disclosure.
For starters, Fairfax only releases the statutory pay details of three executives — CEO Greg Hywood, company secretary and general counsel Gail Hambly and CFO David Housego.
Domain CEO Antony Catalano and events boss Andrew McEvoy are rumoured as Hywood’s most likely internal successors, but shareholders are told nothing about their remuneration arrangements.
Then you have the question of disclosing actual pay in addition to statutory pay.
The Australian Shareholders’ Association again pushed this point hard at today’s AGM. ASA’s Fairfax company monitor Peter Metcalf, a former Lend Lease company secretary, wrote the following in his voting intentions report:
“The company does not publish actual remuneration figures for the CEO and has told the ASA it believes that disclosure would confuse shareholders. The company refuses to meet our request for the CEO’s actuals to include in the table below. The ASA believes that the statutory disclosure of remuneration quantum by themselves are confusing for shareholders and that actual disclosures are far easier for shareholders to understand and we will continue to push for their inclusion.”
The real reason for holding back on releasing the actual huge pay deals for the Fairfax brass is that is sits uncomfortably with the $400 million-plus in redundancy payment that have been shelled out during Hywood’s brutal reign.
No one likes to see a CEO, particularly a former journalist, make more than $10 million firing thousands of staff, but that’s exactly what has happened at Fairfax.
The board did not have to give its CEO $2.8 million in cash in August as part of a deal to cancel 8 million options to buy shares at 58c.
Indeed, it looks absolutely awful now that Fairfax has today come out with a profit warning.
If Domain really did suffer from “an unusually weak July” as shareholders were told today, then why not require the CEO to exercise the options and take the equity risk himself rather than helping him directly cash out?
As it stands, Hywood currently owns 1.552 million ordinary shares worth just over $1 million, yet his gross cash payments from Fairfax are close to $10 million. Importantly, he does own a further 9.33 million options to buy shares (mainly at 58c), so fingers crossed he will soon put some serious cash back into the company and carry some decent skin in the game for the balance of his tenure.
Shareholders also approved another Hywood incentive grant worth up to $3.2 million this morning and reappointed remuneration committee chair Sandra McPhee for another three-year term. All resolutions were passed with more than 98% of shareholders in favour.
Companies are often not too clever when it comes to trading in their own shares, and Fairfax has joined that club after today’s downgrade. In hindsight, it backfired spending $111 million buying back 121 million shares in 2015 at an average price of 92.4c.
With the stock now tanking to a low of 72c this morning (it stabilised to 74.5c by 11am) and net debt down below $100 million, the board might be tempted to unveil another buyback in the near future.
* Stephen Mayne owns 10 Fairfax Media shares and is a volunteer director of the Australian Shareholders’ Association.