Online retailer Kogan is facing significant backlash against a plan to grant its executives a $100 million-plus pay packet, with major proxy firms moving against the proposal and shareholders calling for regulatory intervention.
The e-commerce business, whose shares have jumped more than 150 per cent this year, will ask shareholders at its annual general meeting on Friday to approve a one-off grant of 6 million share options to company founders Ruslan Kogan and David Shafer.
The deal to award the shares was struck in May following a sharemarket rout, meaning the exercise price for the options is just $5.29 a share. Kogan’s shares are currently trading at $18.81 after a COVID-19 induced online shopping boom, meaning the immediate ‘in-the-money’ value of the grant is around $80 million.
In total, the options are worth some $112 million, which has drawn the ire of Australia’s three major proxy advisory firms – CGI Glass Lewis, ISS and Ownership Matters – who have all recommended their clients vote against the proposal.
The governance firms have primarily taken issue with the “excessive” value of the shares, along with the lack of performance hurdles associated with the grant. All Mr Kogan and Mr Shafer have to do to be awarded the generous fillip is to not resign by 2023.
However, if shareholders block the proposal on Friday, Kogan’s chairman Greg Ridder has vowed to find another way to award the executives their shares, either by buying them on-market or as a cash payment.
CGI Glass Lewis has warned that if the board proceeded with that course of action it would be forced to recommend against the re-election of Kogan’s directors at future AGMs as that would be a “governance failure”.
Activist shareholder Stephen Mayne, who has put himself up for election to the board at Friday’s AGM, said the board’s contingency plan could fall foul of corporate cop ASIC’s rules on ‘reasonable remuneration’, and called for the regulator to step in if the grant is not approved by shareholders.
“It’s imperative for ASIC to get involved here and make sure the directors are acting in accordance with their duties,” he said. “The idea that you give away $80 million in value to satisfy a contract that’s not legally approved by shareholders is staggering.”
Mr Mayne’s board tilt has been given a rare tick from proxy firm ISS, which said the non-board supported nominee would increase the board’s independence and the number of non-executive directors.
Ownership Matters director Dean Paatsch said Kogan’s share option proposal was the easiest “no” recommendation he had seen in years, but it would be up to Kogan’s shareholders to decide.
“Shareholders have the right to disapprove or approve this options grant. So it could be that on Friday, shareholders, for all their collective wisdom, decide that this is a good thing,” he said.
“And if that’s the case, so be it. You can’t stop people committing corporate suicide.”
Kogan’s board has argued the staggering value of the grant is reasonable as neither Mr Kogan nor Mr Shafer have taken any other long-term incentives since Kogan’s sharemarket listing in 2016.
However, both founders have collectively sold over $350 million in shares. Mr Kogan is also a Rich Lister with an estimated net worth of just over half a billion dollars.
Despite the numerous concerns, it appears shareholders may support the measure. Tobias Yao, a fund manager at Wilson Asset Management, said while he could see “both sides” of the argument, the fund would be voting in favour of the scheme.
“Over the medium to long term, this will provide the best outcomes for Kogan shareholders, whereas the alternative could cause disruptions,” he explained.
“Ultimately, you do want to reward the management and show them that what they’ve achieved over the last few years, which has been incredible, has been rewarded.”
Similarly, James Davis, chief investment officer at DS Capital, said Mr Kogan and Mr Shafer had created an “enormous amount of value for shareholders”.
“Their fixed remuneration is modest in this context, and as a shareholder I want them to be incentivised to continue to create value,” he said.
Mr Paatsch said he believed the vote on Friday would be “very close”. Mr Kogan and Mr Shafer collectively hold around 20 per cent of Kogan’s shares, but are unable to vote on the grant proposal.
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