Lendlease gets first strike against executive pay

The property giant’s top ranks are under pressure after a near-40 per cent first strike against its pay report as they try to turn around in a tough environment.

There was a strong protest vote against issue of performance rights to Lendlease CEO Tony Lombardo. Picture: John Feder

Big investors have ratcheted up the pressure on Lendlease’s board by delivering a hefty protest vote of more than a third against the re-election of long-serving board members, former Westpac deputy chief executive Phil Coffey and former public servant Elizabeth Proust.

The company has been hit by heavy losses as it seeks to turn around from being a building focused operation into an investment company at a time when the global property market is falling.

The board was also struck by an out-size first strike against the company’s pay practices with 39.82 per cent of proxies lodged against its pay plan.

Lendlease chairman Michael Ullmer blamed the investor reaction to the company’s depressed share price for the strong rejection of the report rather than concerns with the structure of the executive scheme.

“We will take their concerns fully into account as we move forward,” he said. “We share our security holders’ disappointment with the company’s recent financial performance.”

He added that simplifying the business and restoring Lendlease’s return on equity to a planned 8-10 per cent target range from fiscal 2024 was “our most important priority”.

The company is under pressure to find tenants for key projects in Australia, but has said it is looking to launch to fresh investment funds even as it deals with large superannuation funds wanting to redeem their holdings.

Lendlease wants to bring more of its global expertise in areas like build-to-rent apartments back home, but investors want it to focus on simplifying its complex operations.

The once-blue chip company’s shares have plunged to levels not seen since the global financial crisis as big investors press for deeper cost cutting and for it to offload major assets, including its local housing estates unit, and to fully exit areas including retirement villages and US military housing.

Lendlease shares dipped 8c to $6.62 after the meeting, but are flat at $6.71 close to 1pm AEDT. They are down from above $19 before the Covid-19 pandemic struck.

The woes of the company have already drawn three activist investors to press for speedier changes in order to restore shareholder value in the tough environment.

Despite successful luxury tower projects being almost sold out in Sydney, it is running up against lack of demand for large offices globally and the crimping of large-scale projects, with US tech giant Google this month ending a $23bn development tie up in the San Francisco Bay Area.

Investors punished the directors that have been on the board since Lendlease’s humiliating exit from its engineering business and rescue equity raising in the wake of the pandemic.

Ms Proust joined the board in 2018 and was at ANZ for eight years, including four years as managing director of finance arm Esanda. She was also secretary of the Department of Premier and Cabinet in Victoria. Mr Coffey joined in 2017 and was deputy chief of Westpac after a long career in banking.

The award of performance rights for chief executive Tony Lombardo also attracted a 20 per cent protest vote.

Mr Ullmer said that the company’s results were disappointing and that executives had only received a portion of their incentives.

But the company is sticking to its turnaround strategy and says it is on track to develop about $8bn worth of property annually, using less capital and by bringing in partners early.

Mr Ullmer said the company did not meet its performance targets for certain financial measures including operating profit when assessing remuneration outcomes for our senior executives.

He said the short-term award scorecard outcomes were significantly below target and the board exercised discretion to reduce the scorecard outcomes further, cutting bonuses to top executives. Mr Lombardo was awarded a bonus of just 32 per cent of his potential bonus and the company is now emphasising financial metrics like return on invested capital.

Mr Ullmer also noted the recommendations of some proxy advisers against the remuneration report. “We recognise and respect our securityholders’ feedback. Lendlease adopts a disciplined and structured approach to board diversity, renewal and succession planning,” he said.