Interactive Investor

Your vote counts: WH Smith’s big bonuses divide opinion

7th January 2022 09:19

Graeme Evans from interactive investor

The high street and airport newsagent faces a possible shareholder revolt for a second year, while investors get to give their opinion on pay at another mid-cap and popular AIM company. 

WH Smith (LSE:SMWH) and fellow FTSE 250-listed stock Diploma (LSE:DPLM) will be hoping to avoid a repeat of last year's shareholder dissent when they hold their AGMs later this month.

The 2021 rebellion at WH Smith focused on a pay rise awarded to chief executive Carl Cowling at a time of no dividend and a Covid-hit share price. Shareholders at controls and seals business Diploma, meanwhile, were unhappy at the early vesting of performance awards for the company's retiring finance director.

Both meetings take place on 19 January, meaning there's plenty of time for interactive investor customers who hold shares in these companies to vote on the AGM resolutions.

As we report below, WH Smith is likely to face another rocky ride after voting advisory group Glass Lewis recommended shareholders oppose both the annual remuneration report and the company's updated three-year remuneration policy.

AB Dynamics

When: 11am, Wednesday 12 January

Where: Tulchan Communications, 2nd Floor, 85 Fleet Street, London EC4Y 1AE

How to participate: Proxy voting forms are required no later than 11am, Monday 10 January. More details on the AGM can be found here.

Who's in the chair? Automotive industry veteran Dick Elsy, whose previous roles have included at Land Rover, Jaguar and Torotrak, replaced founder Tony Best in July.

How did the company do in the year to 31 August? The track testing business saw earnings per share decline 6% to 37.4p, with first half revenues impacted by Covid-19 disruption to customer activity. Despite supply chain and currency headwinds, a stronger second half enabled AB Dynamics (LSE:ABDP) to declare a final dividend of 3.2p a share for payment on 28 January.

How did shares perform over the year? Down 2.5% to 1,800p (price on Thursday 6 January: 1,670p).

How much is the boss paid? James Routh is on a basic salary of £346,500, having just received a 9.7% pay rise to reflect his performance and earlier appointment at below-market levels. His total remuneration of £870,000 in the last financial year included the equivalent of 80% of salary under a bonus scheme and a further £267,000 from the exercise of share options.

What's the view of voting agencies? The remuneration report is being put to an advisory vote at the AGM, although as an AIM-listed entity there's no requirement to do so. Glass Lewis recommends that shareholders vote in favour. Next year's annual report is expected to contain revised long-term incentive arrangements, including the incorporation of ESG criteria.

WH Smith

When: 11.30am, Wednesday 19 January

Where: Herbert Smith Freehills, Exchange House, Primrose Street, London EC2A 2EG

How to participate: Proxy voting forms should be returned by 11.30am, Monday 17 January. More details on the AGM can be found here.

Who's in the chair? Henry Staunton, the former finance director of Granada and ITV who has been in the role since September 2013.

How did the company do in the year to 31 August? The continued impact of Covid-19 on passenger numbers at airports and other travel locations resulted in the retailer's revenues of £886 million being 62% lower than 2019. It recorded a smaller loss of £116 million or 62.6p a share. There is no final dividend, but the company said it remains in a financially strong position after agreeing new arrangements with lenders in April.

How did shares perform in the year? Up 39% to 1,632p (Thursday's price 1,590p)

How much is the boss paid? Carl Cowling's salary is due to rise to £600,000 in April as part of the company's plan for three annual increases of £25,000 from 2020. It notes this figure is still below the current median of £628,000 for CEOs in the top half of the FTSE 250. Cowling's total remuneration for the last year came to £1.2 million, including a bonus award worth £550,000 and which was based on a changed target of headline earnings rather than profit before tax. Recognising the experience of shareholders and continued dividend absence, the pay committee used downward discretion to reduce the annual bonus out-turn to one-times salary.

What happened at last year's AGM? Some 33% of shareholder votes failed to back the advisory poll on the remuneration report, with their primary concern believed to be the £25,000 salary increase awarded to Cowling in July 2020.

What's the view of voting agencies? Glass Lewis has recommended shareholders vote against the remuneration report. It is concerned by the decision to pay annual bonuses despite the receipt of Covid-19 support from the UK government, adding that a deferral of Cowling's salary increase would have been appropriate in light of last year's AGM result.

What's the view of the company? Cowling became CEO in November 2019, and it was always the intention for his transition to a higher salary to take two-and-a-half years. It is felt that further delaying the increase was not appropriate, particularly given the current demand for experienced retail executives from private equity-backed companies.

How are the company's pay policies changing? The new three-year remuneration policy includes discretion in exceptional circumstances to pay up to 20% of the maximum bonus if personal objectives are met but the overall financial threshold is not achieved, as happened due to Covid-19. It is also increasing the maximum bonus opportunity for the chief operating officer to 160%, in line with the current level for Cowling. However, Glass Lewis argues there is no compelling rationale for this as the increase is not tied to a change in role or responsibilities. It has recommended shareholders oppose the company in the binding vote on the new policy.

How is the company doing on diversity targets? The percentage of women on the board is above the 33% required by the Hampton-Alexander review, while the recommendation of the Parker review to have at least one director from a non-white ethnic minority is currently met.


When: 2pm, Wednesday 19 January

Where: Great Hall, The Charterhouse, Charterhouse Square, London EC1M 6AN

How to participate: Proxy voting forms need to be returned no later than 48 hours before the meeting. More details on the AGM can be found here.

Who's in the chair? John Nicholas has been in the role for nearly nine years and will step down at the conclusion of the AGM. He will be replaced by David Lowden, the former chief executive of Taylor Nelson Sofres who is also the chairman of Page Group.

How did the company do in the year to 30 September? The FTSE 250-listed group, a supplier of specialist products and services in the sectors of life sciences, seals and controls, lifted revenues by 46% to £787.4 million for earnings per share growth of 29% to 56.1p. The final dividend increased by 51% to 30.1p a share and will be paid on 4 February.

How did shares perform in the year? Up 32% to 2,842p (Thursday's price 3,254p)

How much is the boss paid? Johnny Thomson has received a 3% increase in his base salary to £711,000, effective from October. His total remuneration for the past year came to £5.2 million, which includes an annual bonus of £863,000 based on the maximum opportunity worth 125% of salary and with the rest coming from the vesting of long-term incentive awards.

What happened at last year's AGM? The advisory vote on the remuneration report only got 55% support, with concerns focused on the discretion used to allow the early vesting of the retiring finance director’s performance awards. Diploma said the circumstances relating to his retirement after 19 years’ service were unique and will not recur.

What's the view of voting agencies? Glass Lewis notes that Thomson received remuneration that outpaced the compensation given to CEOs at both country and industry peers, although it adds this was due to long-term incentives linked to stretching performance conditions. It has recommended shareholders vote in favour of the remuneration report.

How is the company doing on diversity targets? Following this month's retirement of chairman John Nicholas, three out of seven directors will be women. During 2022 it has pledged to report the ethnic diversity of its senior management team.

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