Distell’s new remuneration policy gets the nod

Distell’s charm offensive seems to have worked again this year.

 At its AGM last week, a remarkable 99% of shareholders voted in favour of the non-binding resolutions on executive remuneration – despite the group’s rather grim seven-year profit record and the steady erosion of its market cap over the same period. 

No doubt the promise of significant changes to the policy helped to keep supporters on side. 

Before last week’s AGM, the board released a trading update and a reminder of proposed changes to its remuneration policy aimed at “aligning performance with shareholders’ interests”. 

So, shareholders were voting in support of the changes to what the remuneration policy is measuring and rewarding for the allocation of short- and long-term incentives. 

For the short-term incentives, which have generated sparse returns for Distell executives since 2015, revenue growth and free cash flow will be key variables in future; various programmes the group has adopted, such as sustainable development, will also be factored in. 

But the big change is what gets measured for the awarding of long-term incentives (LTIs). 

Performance measurements

Headline earnings growth will replace earnings before interest, taxation, depreciation and amortisation (Ebitda) and carry a 30% weighting in the overall LTI scorecard; revenue growth remains with a 30% weighting; and return on invested capital will have its weighting doubled to 40%. 

The remuneration committee reckons these changes strike the right balance. 

“Based on Distell’s positioning as a global business with roots in South Africa, and on the group’s strategy, there is a clear requirement for the board and the executive management to balance growth with returns,” the board explained to shareholders. 

“The group’s divisions are in different stages in terms of strategic focus.” 

Dissenting voice

But while 99% of shareholders attending the AGM voted their support, not everybody is happy. 

Outspoken shareholder activist and long-term Distell shareholder Chris Logan reckons there is little to no prospect the revised remuneration policy will have a positive impact on the group’s long-term profit trajectory. 

His major criticism is the lack of alignment between the interests of executives and those of shareholders. For starters, says Logan, only one board member owns Distell shares. 

That’s chief financial officer Lucas Verwey, who has a mere 100. 

Logan says Remgro chair Johann Rupert has acknowledged the importance of “having skin in the game”, a principle, he says, that works very well at FirstRand. 

Logan noted that at Remgro’s 2019 AGM Rupert said: “If the directors all owned a lot of shares they would watch management and make sure they get performance.” 

During financial 2014, after he was appointed CEO, Richard Rushton was allocated 230,000 shares as a once-off award in lieu of benefits forfeited on termination of his employment at his previous employer, SABMiller. 

In 2016, the board paid him an estimated R38 million for the shares.

Share appreciation (or not)

Rushton’s remuneration Rushton’s total remuneration has increased from R6.2 million in 2015 to R11.2 million in 2020, after peaking at R13.5 million in 2019. 

Logan accepts the sums are reasonable in the context of out-of-control executive pay. 

“My concern is that his incentives are not aligned to shareholder value, which is why shareholders will continue to lose out.”

For more news your way, download The Citizen’s app for iOS and Android.