Indepth: the protest over Man Group’s pay

At Man Group’s May 8th annual general meeting, 42% of shareholders voted against its remuneration policy and 34% against its remuneration report, with a further 1.8% abstaining from the latter. This amounts to one of the largest remuneration-protest-votes of the season.

What sparked the ire of shareholders? Let’s take a walk through Man Group’s recent history. During the good old days circa 2007 and 2008, shareholders routinely saw share prices over 600p. Fast track to the last day of 2012 and Man Group’s shares closed at 82.75p – a mighty fall for one of the biggest listed hedge fund firms in the world. An explanation of what caused this fall can be read here.

This free fall was presided over by CEO Peter Clarke. At the height of Man Group’s performance in 2008, Clarke took home $27 million in earnings. By 2011, he was restricted to a generous $7 million package while shareholders saw their shares fall dramatically in value. Finally, in 2012, performance was so poor that there was nothing the remuneration committee could do to justify awarding Clarke a bonus or a long-term incentive. He saw his income drop to just over a meagre $1 million.

Early in 2013, Clarke stepped down. He was succeeded by Emmanuel Roman, the head of GLG, which had been taken over by Man Group in 2010. In transitioning from GLG to Man Group, it was agreed that Roman would retain his $1 million base salary even though this was higher than the salary earned by Clarke. With his contract in hand and his salary secure, Roman was tasked with turning the company’s fortunes around.

2013 was set to be a year of difficult decisions, restructuring, and lay offs. The year-end share price increased only marginally between 2012 and 2013, and some of the CEO’s performance targets were not met. While the 280-plus laid off employees were packing their desks, Roman was awarded $3,397,163 in total earnings, including a $1.75 million bonus and long-term incentives (‘LTIs’) valued at almost $600,000. Former CEO Peter Clarke took home $811,494 during his 2013 gardening leave, likely more than many of the laid off employees combined.

It is not surprising that at the 2014 annual general meeting, the advisory vote to approve the remuneration report disclosing these payments saw 31% of votes being withheld. The steady decline in Man Group’s shares, the lay offs, and the handsome rewards being earned by executives combined to cause shareholders to protest in silence by withholding their votes. At the same meeting, Man Group introduced its new 2014 remuneration policy for its first binding shareholder vote. This policy imposed a cap on bonuses and LTI awards at 250% and 350% of salary respectively, and was approved with very little complaint. Shareholders signalled their dissatisfaction with actual pay levels by withholding votes but did not actively campaign against the new remuneration policy.

By 2014, it was clear that improvements had been made at Man Group. The tough decisions made in 2013 had helped to turn the company’s fortunes around. The closing share price at the end of 2014 rebounded to over 160 pence, profits were up, the dividend increased and the company announced a share buy-back program. All of these results pleased shareholders. Following this performance, Roman was awarded $5,067,792 in remuneration, including his $1 million salary, the maximum $2.5 million cash bonus and $1.4 million in LTIs. This last payment constituted only 40% of his maximum potential LTI entitlement because 2013’s performance continued to play a part in the calculation.

As a result of the successes of 2014, the board decided that it should strike while the iron was lukewarm. Despite the fact it had just passed a remuneration policy in 2014 which would be valid for three years, it now wanted to amend this policy as being far too restrictive. This decision demonstrates either short-sightedness, or cunning evasion on the part of the board. My vote is for cunning evasion

Now that shareholders were mollified, bonuses of 250% and LTI awards of 350% of salary were no longer going to cut it. The board wanted the ability to reward executives like they had in the golden years and it saw a window of opportunity to increase the maximum potential bonus to 300% of salary and LTI to 525% of salary. All along, the board knew it would increase maximum payouts under its remuneration policy, but it also knew that such a decision would not have been possible when Man Group had been performing so poorly. Instead, it waited for the very first year of good performance to do so.

It is telling that in the Notice of AGM, the board disclosed that it had made the decision that limits placed on 2014 awards should no longer apply, stating that:

Man Group’s more restrictive incentive limit was imposed deliberately at that time as the Board wished to signal to the executive directors and provide assurance to our shareholders that it would not be awarding high levels of compensation so long as the Company’s performance remained disappointing. [emphasis added].

Evidently, bonuses of 250% of salary and LTI awards at 350% of salary do not constitute high levels of compensation. Also evident, it was a deliberate decision to impose restrictions on pay during a period of poor performance and to increase those limits once that period was over.

This proved to be a risky decision. 42% of shareholders voted against the new policy. However, Man Group’s cunning paid off because only 50% support was required for the new policy to take effect.

In response to the shareholder vote, Man Group released the following statement:

While the Board notes that there were a significant number of votes cast against Resolution 2 (approval of the new Directors’ remuneration policy) and Resolution 3 (approval of the Directors’ remuneration report), it has found that, as part of an extensive period of engagement with the Company’s major shareholders ahead of the AGM, the majority of those shareholders with whom the policy proposals were discussed were supportive….

It is clear that Man Group does not view the 42% dissent as problematic. It now has free rein to resume hefty payouts to executives without addressing the concerns of those 42%. As Tom Powdrill, another blogger, has put it, this response amounts to saying “we’ve talked to our shareholders and the ones that count agree with us..”

I would add that they are probably thinking: Now will the rest of you just go away already?

Let’s hope that three years from now, when Man Group is required to put another remuneration policy to a binding vote, Man Group shareholders do not just go away. Shareholders should use the next three years of advisory votes on the company’s remuneration policy to voice their displeasure. This will maximize the chances that Man Group will listen to the 42% the next time it develops a remuneration policy. Until then, we await the results, and payouts, of 2015.

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