Concerns over Reed's Shell chief gets 55% increase US-style share scheme
Plans for a lucrative US-style share option scheme for Crispin Davis, chief
executive of Reed Elsevier, and his senior team have drawn criticism from some
shareholder groups.
The Association of British Insurers has raised concerns with its members
about the potentially large pay-out and the Us style structure of the proposed
scheme.
It could be worth as much as £8m to Mr Davis if he beats performance targets
and the company's share price rallies from 4991/2p to its previous
high of 700p over the next three years, according to Manifest, the proxy voting
agency.
"This is potentially one of the most enriching schemes we have come across
for a while," said Sarah Wilson, managing director of Manifest.
Peter Montagnon, head of investment affairs at the Association of British
Insurers, added: "This scheme does breach our guidelines in a number of aspects.
We have flagged our concerns to shareholders."
However, some of those shareholders have expressed support for the scheme
because of Mr Davis' strong record.
Guy Jubb, head of corporate governance at Standard Life Investments, said:
"This scheme has some unusual aspects .... but taken as a whole, we think it is
in line with our clients' interests."
Another top-10 shareholders said investors were willing to support it.
The package has four main elements including basis pay and bonuses. Mr Davis
received a basic salary of £891,000 in 2002 and a bonus of £445,500.
On top of this, Reed would grant options to Mr Davis equivalent to up to 300
per cent of base salary that cannot be exercised for three years.
The number of options will depend on the performance of Reed Elsevier's
earnings per share over the three years prior to grant and individual
performance. After granting, no subsequent performance conditions are attached.
The third part is a long-term incentive plan. This awards, in any three year
period, further share options to Mr Davis.
Under this plan, Mr Davis could receive the equivalent of 200 per cent of his
salary in share options with no exercise price and 600 per cent in conventional
options.
Finally, a bonus investment plan would allow Mr Davis and others to opt to
put 50 per cent of his bonus into company shares which, if held for three years,
would then be matched by the company.
Reed Elsevier countered that the scheme reflected the group's global
recruitment, with many scheme executives based in the US.
Sir Phillips Watts, chairman of Shell saw his pay and bonuses rise 55 per
cent to £1.8m for 2002, while the oil group's profits and shares fell sharply.
Sir Phillip's total remuneration included basic pay of £745,969 and a 115 per
cent bonus of £874,000. His remuneration for 2001 was !1.15m.
During the year profits at the Anglo-Dutch group fell 23 per cent and the
shares fell 13 per cent.
Shell said its bonus payments were recommended "on extent of achievement of
challenging group targets. These targets encompass financial, customer, people,
sustainable development and other operational objectives."
The bonus target for 2002 was 100 per cent of basic salary, but the
remuneration committee decided to pay 115 per cent, saying Shell's shares had
outperformed the FTSE 100.
By contrast, Lord Browne, chief executive of BP, saw his pay for 2002 fall by
32 per cent, as profits dipped by a quarter and it missed a series of production
growth targets. However, his total package was more than double that of Sir
Philip at £3.9m. The Pensions Investment and Research Consultancy, a shareholder
activist group, said it liked to see "clear justification and explanation of
what bonus targets are."
Andy Fleming at the National Association of Pension Funds, an activist
shareholder, said: "We have no problem with directors earning high levels of
awards where it is merited by high levels of performance." The increased pay
package for Sir Phillip is unlikely to impress investors, who last year launched
a surprisingly public attack on his style of management and communication.
Shareholders found Sir Philip's manner "brusque", and said he had poor ability
to communicate strategy and was defensive when dealing with critical questions.
Shell said the purpose of its bonus was to "motivate group managing directors
to achieve annual results that further the group's long-term objectives".
Financial Times
22-23 March, 2003
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