Dexus dumps $3m incentive package for CEO Ross Du Vernet after investor revolt
The property major dropped the proposed scheme and will update investors on its plan at its annual meeting this week.
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Office landlord and property fund manager Dexus faces the prospect of a second strike against its pay practices after last week dumping plans for a $3m long-term incentive plan for its new chief executive Ross Du Vernet.
Dexus was hit by a first strike against its remuneration report last year when 29.88 per cent of investors voted against its pay practices, and it pledged to improve how it rewards executives.
But the company last week shelved plans, that were to be presented at this week’s annual general meeting, that would have seen Mr Du Vernet’s proposed package of longer-term share-based incentives voted on by investors. Dexus dumped the scheme that was worth up to $3m annually after negative feedback from big investors who opposed its structure. It had also attracted criticism from proxy advisers, who appear to be taking a hard line against executive largesse in companies the sharemarket has marked down.
A former senior Dexus executive, Mr Du Vernet had stepped into the chief executive role after the departure of long-serving CEO Darren Steinberg, and he has sought to reposition the company as a broader funds manager as it deals with the office slump.
Dexus has argued that the worst is over for offices and is betting that top towers like the new Atlassian headquarters in Sydney will provide a way forward. But the rejection of the pay plan is also a shot across the bows of property companies seeking to reward executives after the sector’s lean years. Ahead of the incentive scheme being pulled, proxy house ISS recommended a vote against the property trust’s remuneration report, citing the continued misalignment of executive bonuses with performance and shareholder returns.
It said the company’s short-term incentive scheme had resulted in substantial short-term bonuses for executives “that are misaligned with shareholder outcomes and share price performance at 10-year lows”.
The company’s historical practice was to set earnings growth targets that resulted in bonuses near or at maximum.
ISS said that the now dumped long-term vesting “appears to be materially misaligned with securityholder wealth losses in recent years, noting the lack of a securityholder return metric in previous grants and less-than-rigorous target setting by the board”.
ISS had said that the change in structure of this year’s planned long-term grant, from performance rights to options, resulted in an excessive quantum of options proposed to be issued to the CEO, with the options being significantly in-the-money and essentially providing a windfall gain.
The proxy adviser said that the structure of the grant was materially inconsistent with accepted market practice and shareholder expectations. The recent increase in the Dexus share price may have made hitting the targets challenging. Another proxy house, CGI Glass Lewis, is backing the remuneration report. It had also opposed the long-term incentives to be issued this year, saying that Dexus had not given a compelling justification for removing the various return metrics from the grant in favour of a single metric.
“We generally do not accept an absolute Total Shareholder Return hurdle, as it may unfairly penalise or reward executives based on market conditions, rather than their actual contributions,” CGI said.
A Dexus spokesman indicated the company had reacted to the feedback. “Over the course of the meetings with proxy advisers and investors, it became clear that while many were supportive of an options-based LTI Plan, there were concerns about aspects of the LTIP design. Given the concerns raised by investors, Dexus has decided to withdraw the resolution,” he said. “The board will consider the feedback received from investors and will look to implement an alternate LTIP.”
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