Shareholder rebellions over executive pay aren’t what they used to be. In the past 18 months, bumper incentive arrangements for the bosses have been approved at AstraZeneca, the London Stock Exchange Group and Smith & Nephew. All those companies have managed to argue successfully that, since the bulk of their revenues are made on the other side of the Atlantic, the executives should be paid like Americans.
Perhaps it was such favourable votes (for the executives) that persuaded the remuneration committee of FTSE 100 miner Anglo American that its cheeky “resolution 2” within the proposed $50bn all-share merger with the Canadian group Teck Resources wouldn’t cause a fuss.
This resolution would have created, in effect, a £8.5m bonus at the current share price for the chief executive, Duncan Wanblad, just for getting the deal over the line. The method would have been the roundabout one of amending the existing 2024 and 2025 long-term bonus schemes so that Wanblad would get a guaranteed payout worth 62.5% of the scheme’s maximum.
The objection to that wheeze is obvious. Long-term bonus schemes are meant to do what they say on the tin – measure performance over the long term, which usually means at least five years. You are not supposed to declare, after a couple of laps of the track, that everything is going splendidly because you’ve done a big deal and so a 62.5% victory can be declared.
Now Anglo American says it has “reflected carefully on shareholders’ concerns” and will drop the resolution. A few big investors, including Legal & General Investment Management, had rightly objected.
It is good that somebody is paying attention. Anglo’s merger with Teck has generally gone down well with shareholders; they like the greater exposure to copper, the in-demand metal for electrification of the world’s energy grids, and the skinny premium being offered to Teck’s shareholders. But a bad precedent would be established if Anglo were allowed to hijack an agreed long-term bonus scheme and turn it into a short-term one.
If the deal with Teck is as good as Anglo and Wanblad believe, he’ll be rewarded anyway because the value of his share-based rewards under the 2024 and 2025 schemes will inflate. Anglo’s shares have done well this year, especially after the Teck deal was announced in September, but you still have to wait until the end of the race before dishing out prizes.
There is a separate argument as to whether Wanblad and his senior colleagues deserve bigger incentive packages because they’ll be running a bigger company and will have to relocate to Canada. That seems to have been the thought behind the remuneration committee’s attempted tinkering to encourage “successful delivery of the merger”. But it is a separate issue: if you want to pay Wanblad more because Anglo-Teck will be a bigger beast, make the argument openly.
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Anglo will now be obliged to do exactly that. It says it will be back next year with an “updated directors’ remuneration policy”. So, one way or another, Wanblad will probably end up quids in. But at least Anglo, having been forced into an embarrassing 11th-hour climbdown, will be made to do things by the book.
