Trouble over Shoprite’s plan to award CEO with R36.4 million on top of R117 million pay package
Investors in South African equities face an early test of their new power to cast binding votes over pay when Shoprite Holdings Ltd. asks shareholders to approve another multimillion-rand incentive plan for its chief executive officer.
The world’s two biggest shareholder proxy adviser services, Institutional Shareholder Services and Glass Lewis & Co., are urging investors in Africa’s biggest supermarket retailer to reject the new plan for CEO Pieter Engelbrecht at its Nov. 6 annual general meeting.
The shareholders are questioning the repeated use of exceptional awards on top of Shoprite’s existing incentive programmes. And some of North America’s biggest investors have said they will take their advice.
ISS said Shoprite hadn’t provided a sufficiently compelling rationale for adding another substantial incentive and raised concerns about “the repeated use of exceptional remuneration arrangements.”
It is also recommended that investors reject this year’s implementation report after the remuneration committee applied a special modifier that caused a short-term incentive metric to pay out in full, even though actual performance fell below the threshold target.
The challenge comes during the first AGM season since changes to South Africa’s Companies Act made shareholder votes on remuneration binding and increased the potential consequences for directors overseeing pay.
Until now, investors have shown little inclination to rebel. Average support for remuneration implementation reports among the 200 largest Johannesburg-listed companies increased to 89.6% in the latest year, even as median CEO remuneration climbed 9%, according to PwC. That’s almost three times the inflation rate.
Shoprite declined to comment beyond its published remuneration report and AGM notice.
At Shoprite’s AGM last year, 95.61% of ordinary votes cast supported the implementation report. The 2024 version received only 74.3% support, below the 75% support level that triggers shareholder engagement.
Investors are now being asked to approve a bespoke long-term incentive for Engelbrecht after another one-time plan — a so-called executive super stretch incentive — was valued at R36.4 million, and Chief Financial Officer Anton de Bruyn at R14.2 million.
Engelbrecht’s total remuneration rose by 35% to R117.8 million in the latest financial year, including the incentive plan. Some of the world’s largest investors have said they will object.
Happily pay R1 billion
The State Board of Administration of the Florida Retirement System, Canada’s British Columbia Investment Management Corp., the California Public Employees’ Retirement System, Christian Brothers Investment Services Inc. and the California State Teachers Retirement System are among those who have indicated that they will vote against the new incentive.
Funds under the New York City Comptroller, which oversees about $326 billion, indicated they will vote against the two remuneration proposals, as will KLP, Norway’s largest pension company, with $90 billion under management.
While holding small stakes in Shoprite, the institutions together oversee almost $2 trillion. At least four of the investors said they will also vote against the remuneration report.
Shoprite has posted strong results, with its dividend and earnings per share excluding once-off costs both rising about 12% in the year through June.
Its shares have climbed 26% this year, making it the top performer on the seven-member FTSE/JSE Personal Care, Drug and Grocery Stores Index.
Public Investment Corp., Africa’s biggest fund manager, is the largest shareholder in the company, but billionaire Christo Wiese, who has been on the board for 35 years, controls about 41% of the voting rights through his ordinary shares and a separate class of deferred shares, according to ISS.
Wiese, who sits on Shoprite’s remuneration committee, defended the award, saying the company had provided a sufficiently compelling rationale for the additional incentive and that the decision had been carefully considered by the committee and its advisers.
“This isn’t something that was just decided in two seconds,” he said, describing the committee’s independent directors and advisers as “extremely good.”
Wiese also compared Engelbrecht with former Shoprite CEO Whitey Basson. Recalling his response to criticism of Basson’s remuneration, Wiese said he had been willing to “happily pay a billion rand” for every executive of his calibre.
“If that applied in the case of Whitey Basson, it applies as much to Pieter Engelbrecht,” Wiese said.
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