With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.

In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and dive deep into the situation at Drax Group. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.

Controversy Alerts April 24 — April 29, 2023

4/26 Drax Group plc; Controversy Alert issued on 3/31
4/25 M6 – Metropole Television; issued on 4/4
4/26 Flow Traders; issued on 4/13 
4/26 Teck Resources Ltd.; issued on 4/19
4/27 Sernova Corp; issued on 4/19
4/29 Americanas SA; issued on 4/19

Deep Dive: Drax Group plc

Time flies. It’s now been three years since COVID-19 sent the markets into a tailspin — three years also being the standard duration of the performance period for “long-term” incentive awards, as defined by most public companies. As a result, this year’s round of AGM voting is taking place just as many of the awards granted at the start of the pandemic are being measured.

Since the number of shares granted under a traditional long-term incentive scheme is typically calculated as a percentage of an executive’s base salary, the sharp drop in share price in 2020 meant that, for some companies, substantially more shares were granted to executives that cycle compared to previous years. The subsequent post-COVID market recovery could therefore have resulted in substantial ‘windfall gains’ on these awards upon vesting in 2023.

It’s an issue we highlighted in our 2023 UK Proxy Season Preview — and one that may affect voting at Drax Group’s AGM. The renewable power generator suffered a 47% fall in share price between the grant of its FY2019 and FY2020 long-term incentive awards, but made no adjustments to how award levels were calculated. As a result, the CEO received more than twice as many shares in his May 2020 award as he had in March 2019 — despite both awards being equivalent to 200% of base salary, based on the then-current share price (£1.9953 in May 2020, vs £3.7513 in March 2019)

Drax’s share price had largely recovered a few months later, along with the wider market, and three years on the FY2020 awards are expected to vest in full. Based on the £5.798 average share price over the last quarter of 2022, the CEO’s award is worth £3.26 million, or roughly 570% of salary, of which £2.38m was attributable to share price appreciation. Shareholders benefited from that increase as well, to be sure — but given that the award was granted towards the low end of the cycle, with neither the temporary dip or subsequent recovery the direct result of management or even wider company performance, shareholders may have questions.

For its part, the board is cognisant of ‘windfall’ concerns but argues that because the share price went as low as £1.34, and was in a £2.50-3.50 range for most of the preceding year, the £2.00 grant price does not constitute a “Covid ‘low point’”. Moreover, Drax points to strategic progress and strong performance over the period, and notes that its long-term incentives are subject to a two-year holding period, meaning that the award could be worth less when the shares are released. Post-vesting holding periods are a common feature among UK public companies – as are reductions to award levels, either at grant or at vesting, when the company has experienced a significant decline in share price.

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