Pick n Pay has taken the unusual step of extending a long-term share option scheme for CEO Richard Brasher. The binary options, comprising 1 million shares, were issued to him on his appointment in 2012 and were due to vest in November 2017. If the company’s volume weighted average share price was R68.03 or higher in the 20 days leading up to November 14, 2017, the options could be exercised at R42.24 per share. If the average share price was lower, the options would lapse. In the 20 days from October 23, 2017, Pick n Pay’s closing share price ranged from R57.82 to R60.14, well short of the hurdle.
In its remuneration report for 2018 (part of its integrated report published on Friday), Pick n Pay says the remuneration committee “reviewed the original terms and conditions of these binary options” at a “special meeting” in September 2017.
Committee chair Hugh Herman writes that “Richard Brasher had, with the support of the Board, successfully implemented the strategic action detailed above in order to reset the long-term earnings trajectory of the Group. The prevailing political and economic climate had resulted in negative sentiment in the local equities market, and the committee acknowledged that the substantial once-off costs related to the [Group’s] VSP [voluntary severance programme] could negatively impact the share price in the short term.
“The committee agreed that Richard should not be disadvantaged for strategic action taken for the long-term benefit of the Group. The remuneration committee remains committed to equitable remuneration of its executive directors, which adequately reflects performance delivered. As such it was agreed to extend the term of his binary scheme by a further 12 months, to November 2018.”
This meeting would’ve taken place as the group was preparing a trading statement for the 26 weeks to August 27, 2017. At the time of its AGM on July 31, 2017, Pick n Pay cautioned shareholders to expect headline earnings per share (HEPS) to be down by more than 20% because of costs related to the VSP. The updated trading statement was issued on October 2, 2017, and said that HEPS would decrease by between 20% and 25%. On a normalised basis – excluding the impact of the VSP – HEPS would be up by between 10% and 15%.
Under the original terms of the binary share option award, Brasher is eligible to net as much as R127.91 million (if he exercises the options and sells them) at the stretch target of a 25% annual compound growth rate of the group’s share price. If he achieves the eligibility hurdle extended to November this year, he will net R25.79 million (if he exercises and sells).
In addition to the above, Brasher could be paid a cash bonus of R10.6 million if the 20-day volume weighted average price (VWAP) up to November 14, 2018 is between R105.11 and R128.90 (representing an annual compound growth rate of 20% in the 20-day VWAP share price from grant date).
Since 2010, Pick n Pay has implemented three binary share schemes. “The first was issued in October 2010 to senior executives, the second in October 2011 to deputy CEO Richard van Rensburg and the third to CEO Richard Brasher.” According to previous disclosures, executive directors Jonathan Ackerman and Suzanne Ackerman-Berman were each issued 400 000 binary share options and CFO Bakar Jakoet 500 000 in the 2010 plan (all at R41.23). Richard van Rensburg was issued 400 000 (at R36.55) under the 2011 one.
Pick n Pay describes the incentive plan as follows: “Binary share options are granted to employees in senior management positions. These three to six-year options may only be taken up when prescribed performance conditions linked to the growth of the PIK [Pick n Pay Stores Ltd] share price are met. Should further performance hurdles be achieved, discounted grant prices may apply. If the initial eligibility hurdle is not met, the options are forfeited.”
The group’s executive directors, including Brasher, were paid discretionary bonuses totalling R1.9 million in the 2018 financial year. Brasher received R800 000 as part of his R11.421 million total package. These discretionary bonuses were paid as the group “did not meet the required performance measures set by the remuneration committee for the payment of a short-term annual bonus. However, the remuneration committee acknowledged that certain important strategic steps were taken during the period to drive sustainable performance, but which had a negative impact on short-term profitability. The remuneration committee recognised the strategic action taken and progress delivered through the payment of an ex gratia award to executive directors and senior management.”
The remuneration committee is chaired by Hugh Herman, and comprises (group chair) Gareth Ackerman, Audrey Mothupi and Jeff van Rooyen.
* Hilton Tarrant works at YFM. He can still be contacted at firstname.lastname@example.org.
Brought to you by Moneyweb