Sigma Healthcare hit by protest vote over executive bonuses

Sigma Healthcare has received a ‘first strike’ from shareholders, as it defended paying bonuses to executives during a takeover bid.

Sigma CEO Mark Hooper, right, with chairman Brian Jamieson at a previous AGM.

Australia’s biggest pharmaceutical wholesaler Sigma Healthcare has received a first strike from shareholders over its executive remuneration after it paid bonuses to retain key personnel during a failed takeover bid from rival Australian Pharmaceutical Industries.

A total of 29.2 per cent shareholders voted against Sigma’s remuneration report, passing the 25 per cent no-vote threshold to record a first strike. A second strike next year could spark a board spill motion.

The company’s remuneration structure sparked questions from the Australian Shareholders Association, which asked when was the last time Sigma’s board had benchmarked executive pay against companies of a similar market capitalisation.

Outgoing chairman Brian Jamieson said the board froze executives’ fixed remuneration in 2017, and reviewed pay structures. The board has since approved increases of 3 per cent in 2018 and 2.5 per cent in 2019 with no rises this year.

“In terms of benchmarking based on market capitalisation, Sigma was only removed from the ASX 200 index effective from September 2019,” Mr Jamieson said.

He maintained that paying out incentives to keep staff during API’s failed takeover of Sigma was the right thing to do, and “doing nothing” would have been commercially destructive.

“I’m very firm in my commitment that implementing this retention. Had we done nothing and lost good people in the process, proxy advisers and investors would rightly blame us for poor governance and not properly protecting the company.

“This decision was taken in recognition that Sigma was subject to a takeover offer and was at the most vulnerable to losing key people in this period of challenges and uncertainty. Such loss would have resulted in significant difficulty and cost to replace them in this environment.

“In fact, 17 per cent of people on the program did leave, forfeiting their right. This would have been much worse without it.”

But Mr Jamieson - who stepped down as Sigma’s chairman at the company’s annual meeting on Wednesday to make way for Ray Gunston - said the board would take notice of shareholders’ concerns over executive pay and review remuneration structures.

The recording of the first strike came as Sigma revealed a revenue jump of 30 per cent in the three months to March 31 - a period in which the company’s supply chains came under pressure from catastrophic bushfires and the COVID-19 pandemic.

In March, when the coronavirus spread to Australia, company chief executive Mark Hooper said sales were 70 per cent higher than on average, with some weeks recording an 80 per cent increase.

“Excluding the Chemist Warehouse transition in each year, underlying volume for the first three months of this year is up over 30 per cent, with revenue also up around 30 per cent,” he said.

“This is likely to be a combination of new revenue and pulled forward demand, and where that balance sits will play out over the remainder of the year.”

Mr Hooper also confirmed the company had received 13 expressions of interest for a potential sale and leaseback of its warehouse distribution network, which it has invested $250m in the past four years.

This investment included around $165 million on acquiring land and construction of the physical DC buildings, with the balance spent on the acquisition and implementation of highly efficient automation equipment.

“We have selected a shortlist to assess and progress discussions. We will provide an update once a transaction is finalised, which we anticipate being in the third quarter of this year,” Mr Hooper said.