Hedge fund Bell Rock says it is still building support for vote against Whitehaven’s pay report
Behind, but closing the gap – hedge fund Bell Rock says it may this week still deliver a strike against Whitehaven Coal’s pay report.
Activist shareholder Bell Rock says it is inching closer to delivering a strike against Whitehaven’s remuneration report this week, amid a vigorous campaign aimed at getting the coal miner to return more cash to shareholders rather than spend $US3.2bn ($5.1bn) on buying BHP’s Queensland coal mines.
Bell Rock concedes it is still well short of gathering the support of enough shareholders to vote against Whitehaven’s pay report to deliver a first strike vote, but says it is on track to help deliver a significant backlash at Thursday’s AGM.
Whitehaven will spend $US2.1bn in an upfront payment for BHP’s Daunia and Blackwater mines, plus $US1.1bn in direct payments over the next three years – and potentially another $US900m over the same period if coking coal prices hold up at elevated levels.
Bell Rock has run a vigorous campaign against the acquisition this year, arguing Whitehaven should return its $2.65bn cash war chest to shareholders instead of buying more assets.
Most recently the UK shareholder group’s campaign has focused on delivering that message to the company through a vote against its pay report. It is also targeting a share issue to Whitehaven chief executive Paul Flynn – of about 534,000 shares – that needs to be put to shareholders as part of the company’s incentive plans.
The key issue argued by Bell Rock is that Whitehaven’s decision to remove the traditional divide between short and long-term incentives – and instead run a “single incentive plan” (SIP) based on production metrics and earnings – offers an incentive towards risky acquisitions.
The removal of total shareholder returns as a measurement – which includes the company’s share value, including dividend payments – only exacerbates that incentive, Bell Rock says.
Bell Rock needs to convince 25 per cent of Whitehaven shares voted at Thursday’s annual shareholder meeting to deliver the company a first strike, but suffered a setback last week when proxy advisers CGI Glass Lewis and Ownership Matters backed the company’s position in client recommendations.
But Australia’s third major proxy advisory firm, ISS, did not and Bell Rock at the weekend said that could boost its position by up to 10 per cent of the company’s register if historical voting trends held good. Bell Rock holds about 4.8 per cent of Whitehaven shares. More than 92 per cent of Whitehaven shareholders voted in favour of the company’s new pay plan at last year’s annual meeting.
A spokesman for Whitehaven said shareholders had voted overwhelmingly in favour of the pay structure.
“Our focus is on making sure all shareholders have access to accurate information around our remuneration and incentive structures. It is disappointing ISS and Bell Rock have chosen to reverse their previous support for our remuneration framework this year, especially against the backdrop of record financial performance and strong shareholder returns,” he said.
“ All other large proxy advisors have indicated they are supportive of our remuneration report this year, which is unsurprising given they held that position last year when the SIP was first introduced and voted on. Extremely strong returns for shareholders during FY23 are the key driver of management remuneration outcomes, and reflect the principle that when shareholders do well, management should share in those benefits.”
Bell Rock says meetings with retail and institutional shareholders suggest it is still closing the gap to the 25 per cent threshold, and believes international investors are likely to follow the ISS advice, with the investor noting that Florida’s State Board of Administration – believed to hold about 2.5 million Whitehaven shares, or about 3 per cent of the company – posted its decision to vote against Whitehaven’s pay report last week.
“Substantial increases to the fixed remuneration of the executives and the board fees of non-executive directors are well above the average wage growth in Australia, and has brought their remuneration to well above peers,” the FBSA said on its website last week.
“The long-term component of the new incentive plan has incorporated an excessive component of 50 per cent weighted to poorly disclosed non-financial performance measures associated with ‘strategy’.”
The FBSA also said it would be voting against the issue of the shares to Mr Flynn, noting the new pay structure delivered “heightened risk of excessive board discretion in determining bonuses against the non-financial strategy hurdles and future misalignment with shareholder interests” – an argument that mirrors Bell Rock’s arguments.
Bell Rock chief investment officer Mike O’Mara said the BHP acquisition was a “gamble” on coal prices, and said Whitehaven’s pay structure would probably not punish Mr Flynn if the decision went sour.
The Whitehaven spokesman said the company continued to engage with its shareholders.
“We will continue to engage with our shareholders on this topic and ensure that misleading information is addressed in the lead up to our AGM,” he said.
Whitehaven shares closed on Friday at $7.54.