Proxy group ISS takes aim at Perpetual directors, board bonuses

Payments to Perpetual’s senior management are out of whack with industry norms, according to influential proxy group ISS.

Perpetual chief executive Rob Adams. Picture: Nikki Short

An influential proxy advice firm has taken aim at ASX-listed funds giant Perpetual over its board and executive pay, warning the firm was rewarding senior management while its share price remains in the doldrums.

In a note obtained by The Australian, proxy firm Institutional Shareholder Services, better known as ISS, recommends shareholders block the re-election of two Perpetual directors, and only begrudgingly supports Philip Wagstaff’s board tilt.

This comes amid shareholder anger at Perpetual’s management team over the firm’s debt load after its acquisition of rival fund manager Pendal and mooted plans to split the business and offload the brand name in a deal with KKR.

ISS told investors US-based director Mona Aboelnaga Kanaan, who sits on two other boards, was not suitable to remain at Perpetual, warning she had presided over “problematic pay practices” which had resulted in “misaligned remuneration arrangements with poor company performance and shareholder value destruction”. ISS also took aim at Paul Ruiz, warning the audit, risk and compliance committee member and incoming chair was an inappropriate director.

The proxy firm said Mr Ruiz’s connections to KPMG, which has been Perpetual’s auditor since 1991, made him unsuitable, given corporate governance concerns.

ISS said Mr Wagstaff could only receive qualified support for his election, noting he was a cleanskin who only joined the board in November 2023 but was a member of Perpetual’s people and remuneration committee “and problematic pay practices are noted”.

ISS warns Perpetual faces a “misalignment” between pay and the performance of the business, which posted a $472m loss in its last set of results. The proxy firm said Perpetual had shown “no justification” for its executive bonuses, noting they were “materially misaligned with performance and shareholder returns”.

“The discretionary STI bonuses are inconsistent with the poor financial results and FY24 STI scorecard outcomes, where the majority of financial performance measures were disclosed to have been ‘below plan’,” ISS said.

In particular ISS took issue with a $1.5m payment made to wealth management boss Mark Smith, alongside several retention payments made to executives.

“Despite the company’s explanation, the award of cash retention payments to executive KMP (key management personnel) is materially inconsistent with the company performance, shareholder losses and accepted market practice,” ISS said.

“The FY24 STI bonuses appear materially misaligned with the company’s financial performance and material share price decline.”

Perpetual CEO Bernard Reilly.

However, ISS backed a vote to award Perpetual’s new chief executive Bernard Reilly long-term incentive performance rights, noting they were in line with market and industry peers and were at a lower level than those handed to former CEO Rob Adams. Mr Adams pursued Perpetual’s acquisition of Pendal before announcing he would leave the firm in the wake of announcing the KKR carve-up.

ISS also took issue with the small shareholdings of Perpetual stock by directors, warning the current minimum holding rules were “materially inconsistent with widely accepted market practice”.

“In this regard, the majority of directors did not holder (sic) at least 100 per cent of NED fees which is commonplace in the Australian market,” ISS said.

A Perpetual spokesman said the board “recognises the importance of maintaining a meaningful equity interest in the company to ensure alignment with all shareholders”.

“Due to trading restrictions put in place as a result of the strategic review which remain ongoing, Perpetual’s non-executive directors have been restricted from purchasing shares on market for a material portion of FY24 and into FY25,” he said.

Sublime Funds Management director Rodney Forrest.

ISS also recommends shareholders reject an outside bid for a board seat by Sydney fund manager Rodney Forrest, amid investor anger over the company’s financial position and the KKR-Perpetual split.

The proxy firm said it “is generally counter-productive to support the election of a director who is not endorsed by the company’s board, unless there are compelling grounds to do so”.

Mr Forrest said ISS’s recommendations to vote against Perpetual’s pay report validated his criticism of company management and the poor share price performance.

Shares in Perpetual are down 10.52 per cent over 12 months, closing at $18.62 on Monday.

“The company share price is at a 25-year low and we’re in a roaring bull market … there’s a systematic disconnect,” Mr Forrest said.

“It doesn’t make sense that an equity manager is trading at its all-time lows and the equity market is at its highest.”

Mr Forrest said he was also concerned that global communications firm Sodali & Co, which had been contracted by Perpetual, had contacted shareholders who were supporting his tilt at the board.

In a note seen by The Australian Sodali & Co asked for “feedback” on why one firm had supported his push.

Originally published as Proxy group ISS takes aim at Perpetual directors, board bonuses