Charter Hall Group and executive pay

Jul 2022

The issue

Charter Hall Group Shareholders were asked to approve a special performance-based retention award to the CEO with a face value of A$16m at grant. If the performance hurdle is achieved at close to the middle of the target range, the award will be worth approximately A$32m at vesting. The award was intended to supplement the CEO’s regular remuneration arrangements, which are competitive for the market and sector. Similar retention awards were granted to around 25 of the company’s key executives.

In order for the award to vest, the company’s total shareholder return (i.e. TSR, share price performance plus dividends) must increase by between 12% - 15% over the next five years on a compounded annual basis, and must also rank in the top three of a bespoke peer group of 20 Australian property companies.

The issue

Engagement type One-to-one

Our engagement

Fidelity generally does not support one-off retention awards and has concerns about rapidly escalating executive pay in the sector. We believed that the award could pose reputational consequences for the company in light of its high quantum, and although its absolute TSR growth target was ambitious, we felt that if the target were achieved, it could be in part due to sectoral tailwinds. We were concerned that a high payout under these circumstances could provoke negative reaction from stakeholders and external parties. However, we did acknowledge competitive pressures in the sector for retaining talent and were somewhat comforted by the peer outperformance requirement. We engaged with the company prior to reaching a final decision.

We concluded that we could not support the award because of its high quantum. However, recognising that the company faces a highly competitive environment for retaining executives in its sector, we felt that abstaining to protest the size of the award was the most appropriate response. The strength of the CEO and the long-term award design requiring outperformance were important factors in deciding to abstain rather than vote against.

The outcome

The resolution was approved, with 61% of votes cast in favour and 39% voting against. Approximately 5% of votes abstained on the resolution. We anticipate that the high level of dissent should discourage companies in the market from granting one-off retention awards unless this is supported by a strong performance rationale.