Mark Slater has issued a warning to his investment holdings that he will not hesitate to vote against them if they issue bloated remuneration reports that use nil-cost share options, which he argues stack the deck against investors.
The City veteran and co-founder of Slater Investments has written to the chair of the remuneration committees for each of his holding companies, which include Liontrust Asset Management, Disney, Royal Dutch Shell and Legal & General, to express his dissatisfaction with the remuneration policies at “most” public companies.
In the letter Slater claimed “a relentless ratcheting of terms and conditions” and common pay practices like nil-cost share options have driven the interests of directors and shareholders further apart by allowing the former to reap massive rewards.
“It has become customary for executive directors to receive a handsome salary, plus the same again in cash bonus and a similar amount in nil-cost options – year in, year out,” he said. “Is a good salary not enough to get directors out of bed in the morning and to diligently work their allotted hours?”
Companies ‘rigging the roulette wheel’
Slater warned his fund holdings he would be voting against any new schemes involving nil cost share options, which entitle a holder to pay nothing to exercise the option, which he lambasted as “simply rigging the roulette wheel”.
“Share options should never be granted with exercise prices at less than market price,” he said. “Receiving an option is already a huge privilege. The options offer a return for no capital outlay. They are already a one-way bet, unlike true share ownership.”
Hurdles set for exercising options like adjusted earnings per share which have become “a debased coinage” should be based around total shareholder return relative to sector peers, he added.
Liontrust, which features in all three Slater Investments funds, faced a shareholder backlash when it attempted to shakeup its remuneration policy and hike variable pay for chief executive John Ions in 2018. The following year all resolutions, including the annual report on remuneration, were unanimously approved.
Remuneration reporting has run wild
Slater also said he would be voting against remuneration reports longer than two pages.
The remuneration committee of defunct construction firm Carillion mentioned the word bonus 87 times in its final annual report which stretched to a staggering 17 pages, Slater noted. The now infamous construction company, which collapsed two years ago to the day, received billions of pounds in government contracts, despite obvious red flags and profit warnings.
“Remuneration reporting has run wild and needs to be hacked back to its essentials,” Slater said. “A shorter report will be more easily understood, more transparent and will hopefully leave less scope for multiple, overlapping schemes.”
High Pay Centre director Luke Hildyard agreed companies are guilty of coming up with unnecessarily complicated calculations to justify sky high pay packages of their own making.
“Despite the great lengths that companies go to in order to achieve a supposedly robust link to performance, employing vast teams of consultants to devise the package and undertaking extensive consultations with shareholders, they nearly always pay out every year,” said Hildyard.
“Quite apart from everything else, this is a considerable waste of the board’s time and energy.”
