Analysts are urging Harvey Norman shareholders to not support a proposal that would see the pay packets of six Harvey Norman executives boosted by 26% to nearly $15 million dollars. They claim that the plan is a” bit like widening the goalposts because you haven’t managed to kick the ball through the narrower ones”.Last month, the mass retailer floated a plan to issue 17,500,000 fully paid ordinary shares to six of the company’s executive directors, including Chairman, Gerry Harvey and David Ackery, General Manager of Electrical.
Writing for the Intelligent Investor, James Greenhalgh, said “Gerry Harvey’s proposed issue of 17.5m options to six executives, including 7.5m to him and his chief executive wife, Katie Page, really is beyond the pale. Essentially, these options will replace previous options that didn’t work out – because the share price has fallen from $7.15, with more favourable ones, in other words, the options are effectively being re priced. It’s a bit like widening the goalposts because you haven’t managed to kick the ball through the narrower ones”.
Under the proposal David Ackery would get 3,000,000 shares, Arthur Brew, 1,000,000, Gerald Harvey: 3,000,000, Chris Mentis: 3,000,000, Katie Page: 4,500,000, John Slack-Smith 3,000,000 shares.
As a result of the proposed share distribution, Katie Page’s salary will increase from $1,313,119 to $3,845,000, Gerry Harvey’s will increase from $1,042,807 to $2,380,000, Chris Mentis’ will increase from $809,592 to $2,530,000, David Ackery’s will increase from $1,250,482 to $2,980,000, John Slack-Smith’s will increase from $1,250,495 to $2,980,000, and Arthur Brew’s will increase from $518,936 to $960,000.
Greenhalgh went on to say “What’s particularly galling about this options issue is the low hurdles. Some of the options will become exercisable if EPS growth is only 5%, while all of them will become exercisable if EPS growth is 10% or greater. These aren’t particularly high hurdles in the first place”.
“Gerry Harvey’s intentions are clear. As previous options have not been profitable for executives, he’s making sure the new lot will be. Instead of jumping, his executives will simply need to step over these new hurdles”.
The Intelligent Investor claims that Gerry Harvey’s rationale is based on having underpaid Harvey Norman directors compared to other directors at companies of similar size.
While that was true once, it’s becoming less so. While Harvey himself will receive a nominal cut to base salary in 2010 (his wife will get a 50% increase), the total base salary for the six executives will increase by 26% this financial year. They will also share $2.4m in short term cash incentives. Between 2007 and 2010, base pay for the same six executives will have risen 130%.
“We accept that Harvey Norman needs to pay its executives the market rate. And we’re very happy for the company to pay bonuses for high performance. But our strong preference is that those benefits are delivered in cash or, better still, shares purchased on the open market.”
Greenhalgh conclude saying “This isn’t the first time Gerry Harvey has tried to re-price options, We recommend that you vote against all options grants (resolution 1) at the meeting. If you can’t attend in person – and it could be entertainingly fiery – you can either vote online or return the form to the share registry by 28 April”.