Sports Direct received qualified support for its new 2015 Bonus Share Plan which is, at least in part, designed to motivate and reward its Executive Deputy Chairman, Mike Ashley (“MA”). The resolution to approve the new plan was passed at the special General Meeting yesterday with 60.4% of votes cast in favour (but remember that MA, who holds over 50% of Sports Direct’s shares, did not vote).
Anyone looking for indications that the company had engaged with shareholders to clarify the extent of MA’s participation in the plan will have been disappointed. So we are still left with the burning question of what shareholders have actually approved – is it really a broad-based plan where MA is just the main participant, or is it a plan targeted specifically at MA, with other employees benefiting as a window-dressing exercise to sugar the pill for disgruntled shareholders? There have been hints, but nothing too specific.
At first sight, this vote may look like “game over”, but in the new world of binding shareholder votes on remuneration, that isn’t necessarily the end of the story! To forecast how this will pan out you need to understand what votes are required at AGMs and, very importantly, whether MA will be able to vote on those resolutions.
Although it is called the “2015” plan, it appears that there is nothing to stop awards being made under it as soon as Sports Direct publishes its preliminary results on 17 July. However, even if MA’s award is granted before the 2014 directors’ remuneration report is published, the company’s ability to satisfy that award should it vest in 2019 and 2021 will still be subject to its being approved as part of the forward-looking remuneration policy of the company in the meantime. The first opportunity to obtain such approval will be the binding vote on future policy at Sport Direct’s AGM in September. Effectively this means that, despite the plan having already received shareholder approval, the size of the allocation to MA will also have to be approved in due course. Even if this allocation is approved, some shareholders may express dissatisfaction through the votes to reappoint members of the remuneration committee at this year’s AGM.
Now we need to look at whether MA is able to vote on any of those reappointments. Neither the relationship agreement that MA has with Sports Direct nor the company’s articles of association appear to block him from voting on these resolutions. However, as a director, MA is under an obligation to avoid conflicts of interest, and hence he did not vote on the introduction of the 2015 Share Bonus Plan. He has used his votes to back the company’s directors’ remuneration report before, but that was against the background of his taking nothing in the way of remuneration from the company. Presumably he will not participate in future AGM remuneration votes where he has an interest – that may cover all relevant votes until his interest in the new plan ends in 2021. The position is a little more complicated when it comes to voting on the reappointment to the board of members of the remuneration committee. Under a new Listing Rule which took effect in May this year, these appointments need to be supported by a majority of votes from independent shareholders. The way this rule works is slightly convoluted, but in practice it is unlikely that MA will use his shareholding to re-appoint the affected directors against the wishes of other shareholders.
Given that this is still a live issue, we await further developments with interest ….