Important highlights from upcoming meetings, provided by Glass Lewis’ global research team:
Australian Securities Exchange November 11 AGM
The low interest rate environment that has arisen in response to COVID-19 has impaired Computershare Limited’s (ASX: CPU) ability to generate margin income that it makes from holding client balances. This has put the previous EPS growth performance measures that had been attached to the LTI’s well underwater. In response, CPU has dropped the EPS growth performance measure from its LTI and is replacing this component of the LTI scheme with Share Appreciation Rights (“SARs”) that will reward executives for improving CPU’s recently depressed share price. However, CPU takes this further than the FY2021 LTI award and is also seeking to issue a Recovery Equity Award that would seek to replace the EPS growth component of on-foot LTI’s.
CPU is not alone in seeing its on-foot LTI awards fall underwater due to COVID-19 torpedoing previously set growth targets, however offering to fix management up for those historic awards is not market practice. Shareholders may have a tough time in supporting the Recovery Equity Award which would essentially spare CPU executives from the pandemic with respect to the on foot LTI’s, when shareholders and the executives of other ASX-listed entities have received no such treatment.
CPU has also made the allocation of SARs in fair value, while the former EPS growth awards were made with reference to face value. As the performance condition of increasing share price is built into the fair value of the SAR, the SARs grants are also far more valuable than the performance rights that they seek to replace.
Domain Holdings Australia Limited
Australian Securities Exchange November 10, 2020 AGM
The impact of COVID-19 pandemic on the real estate market necessitated cash cost reductions at Domain Holdings Australia Limited (ASX: DHG). The company launched a voluntary employee and director program called Project Zipline aimed at delivering a 20% reduction in employee cash salary costs. Under this plan employees were asked to elect either to receive specified percentage of base salary in share rights or to reduce their working days (or combination of both). Project Zipline received high support from DHG’s staff with approximately 87% ultimately taking part in the program, including the company’s MD/CEO Jason Pellegrino who accepted 50% of his fixed remuneration for six-month period in form of share rights.
Share rights under the plan were awarded in a single grant on May 7, 2020, based on VWAP of the Company’s shares over the ten trading days from March 26 to April 8, 2020, being A$2.0093. Domain’s share price declined significantly during the first phase of the COVID-19 crisis (from A$3.78 per share on February 7 to A$1.89 on March 20), however, recovered in the subsequent period. As a result, employees that elected to receive portion of their salary in equity benefited from the sharp increase in share price after the calculation of VWAP with DHG share price currently trading at around 200% higher level.
Project Zipline can be viewed as a retention tool given that share rights are anticipated to vest in November 2021, subject to the holder remaining employed by DHG. Should the share price continue to grow or remain at its current level, it will serve as a strong disincentive for participants to resign from the company.