Shareholders in revolt over EOH pay policy

EOH is in the cross-hairs of shareholders over executive pay, with an astonishing 65% of shareholders voting against the group’s remuneration policy and its implementation at Thursday’s AGM.

The resolutions are both non-binding, but given that they both failed to achieve 75% of votes in favour (both votes also failed at the last AGM), the group is required to formally engage with dissenting shareholders.

It says it “has already commenced engagement with the dissenting shareholders who have reached out to the company to share their concerns on both the remuneration policy and remuneration implementation report and will continue to do so”.

It notes in its remuneration report that “other than shareholder engagement at the (February) AGM, no further shareholder concerns were received by the Remco (remuneration committee) subsequent to the meeting, notwithstanding an invitation by EOH to those shareholders who voted against the aforementioned resolutions to engage with EOH in writing”.

It did so at that last AGM on 20 February. At that time, it noted that “the remuneration policy appears to be inconsistent with best practice. Although the remuneration policy does disclose some information there are some shortfalls as they relate to other disclosures that aim to foster enhanced accountability on remuneration.”

No details

EOH’s remuneration report discloses precious little about the criteria used to gauge performance on both short- and long-term incentives. On the former, it refers only to these being “linked to KPIs (key performance indicators) delivered annually measured against objectives and targets”. In 2019, there were two specific criteria set. There are no details on how the various executives fared against these.

EOH knows that its remuneration policy isn’t up to scratch, and group CEO Stephen van Coller surely knows it, too. But given the scale of the turnaround at EOH, the board can arguably be forgiven for not attempting an overhaul of the policy over the past year. There were far more pressing issues that required attention.

Its reporting has already improved dramatically. The level of disclosure in its annual report is unprecedented. There are detailed breakdowns of revenue, expenses, assets and liabilities. Arguably these should’ve been there all along.

Its integrated report runs to 168 pages this year, with the annual financial statements running to 75 pages. Last year, both totalled 140 pages.

The group says “an enhanced focus on remuneration will be prioritised during the upcoming financial year”. It has enlisted the help of remuneration specialists Vasdex Associates to “review executive and senior management incentives, both short and long term, and redesign the incentive schemes as necessary. Several shortcomings were identified in the existing schemes including that the focus was based purely on share price growth, which lost its relevance in terms of connection to individual performance and therefore had limited ability as a retention tool. Alongside this, the remuneration schemes were not consistently and transparently performance based.”

It says “the work undertaken by Vasdex has resulted in the formulation of a new approach to STI (short-term incentives) and LTI (long-term incentives), which will be implemented at the end of the financial year 2020 with awards under the new share plan commencing from August 2020.”

Having been bought out of an existing contract at MTN Group, Van Coller joined EOH with a guaranteed payment of R10-million, paid in two equal tranches in October 2018 and October 2019. He was paid a discretionary bonus of R4-million, which, with guaranteed remuneration of R5-million, brought his total pay for the 11 months to R19-million. Van Coller was also awarded one million share options on joining EOH.

Van Coller, in a February letter to stakeholders, explained that he said yes to EOH founder Asher Bohbot’s plea to join the group because of “the opportunity to make a difference in working to minimise the potential job loss risk at EOH, coupled with the openness of the chairman and the board to support the changes required”.

Tumultuous year

After a two-decade stint in banking (including 10 years as CEO of corporate and investment banking at Absa Group), Van Coller was in a comfortable role as vice president: digital services, data analytics and business development at MTN Group.

Given the tumultuous year — things were far worse at EOH than he could’ve anticipated — one wonders if he would make the same choice over again.

The fix-it job at EOH has been like few others. Only Gavin Hudson’s similar mop-up effort at Tongaat Hulett comes close. But Tongaat has real assets: sugar-cane farms, land, mills. As a services business, EOH really only trades on trust. Goodwill (R1.8-billion), despite this being written down significantly in the past year, remains twice the value of property, plant and equipment and intangible assets together.

There was a real risk that EOH would collapse.

Van Coller’s clear and determined leadership, coupled with a complete overhaul of the board, is arguably the reason why the group is still in reasonable health and why 10 578 employees still have jobs.

Van Coller knew he had to ensure that the group be rebuilt as an ethical business and that governance be significantly improved. He has made a string of inspired appointments to help achieve this. Over time, this overhaul would fix its reputation in the market, particularly among customers and shareholders.

And, of course, he has a very, very strong incentive to achieve this, given those one million share options.

• This article was originally published on Moneyweb and is used here with permission