Kingspan faces investor opposition to pay policy

Advisory firm criticises pension, share bonus and severance arrangements at the company

 

Insulation giant Kingspan faces the prospect of a number of shareholders voting against its remuneration policy next Friday as a leading advisory firm criticised pension, share bonus and severance arrangements for top executives.

Institutional Shareholder Services (ISS), a firm that advises major investors on corporate governance matters ahead of annual general meetings (agm), said it does not support Kingspan’s new policy of awarding incoming directors a pension capped at 25 per cent of base salary.

“This proposed rate of 25 per cent is relatively high and the cap may be exceeded at [remuneration] committee discretion,” it said.

ISS also took issue with the fact that current executives do not have to hold on to stock for a specified period after they are vested, which falls short of the new UK Corporate Governance Code’s recommendations.

In addition, Kingspan’s proposed policy on potential severance payments to executive directors “lacks clarity” and, as such, is out of line with normal market practice.

ISS urged shareholders to reject the group’s remuneration policy at the upcoming agm. It is the first time that Kingspan has put its policy on pay to a shareholder vote, albeit as a non-binding resolution.

Advisory firms and major institutional investors have been paying closer attention to remuneration reports of publicly-quoted companies in recent years. Last week, more than a fifth of Glanbia shareholders voted against a proposed 22 per cent pay increase for managing director Siobhán Talbot after ISS and rival, Glass Lewis, recommended that investors come out in opposition.

Some 15.5 per cent of shareholders voted against CRH’s directors remuneration report and 13.3 per cent opposed its new pay policy at the building material giant’s agm last Thursday.

‘Likely upgrades’

Kingspan chief executive Gene Murtagh saw his total pay package jump by 30 per cent last year to almost €2 million as a pick-up in earnings growth delivered an increase in his cash bonus and a resumption of stock awards. Chief financial officer Geoff Doherty’s compensation grew by 23 per cent to €1.54 million.

Glass Lewis has come in favour of the new pay policy at Kingspan, however. “In the aggregate, we view the proposed changes to be broadly positive,” it said. “Further, we believe that strengthening of shareholding guidelines as well as the enhanced committee discretion to reduce awards in certain circumstances should serve to promote alignment between executives’ interests and those of shareholders.”

Kingspan said in its report that it will consider making executives that are appointed in the future hold on to shares awarded under a long-term incentive plan for two years after they are vested. The remuneration will also look into a mechanism for new appointees to build a shareholding in the company, it said.

With Kingspan set to publish a trading update on Friday ahead of the agm, Davy analysts expect the group to signal organic sales growth of 1 per cent in first quarter, “with adverse weather contributing to a sluggish start of the year”.

“Our current assumptions for 2019 include organic revenue growth of 3 per cent with trading profit up 10 per cent year-on-year,” the Davy analysts said. “Past experience points to likely upgrades over the course of the year.”

The agm will take place a week after it emerged that Kingspan’s recent €700 million offer for two divisions of Belgian company Recticel had been rejected. The Cavan-based firm is unlikely to revise its offer, signalling an end to the process.

While the Davy analysts said that Kingspan’s failure to secure the two businesses was “disappointing”, they said that the episode highlights the company’s “discipline” when it comes to mergers and acquisitions.