Shoprite's CEO earned R117.8m. Shareholders now get a binding vote on 6 November

Shoprite shareholders vote on 6 November on a new one-off incentive for CEO Pieter Engelbrecht, and two of the world's biggest proxy advisers are telling them to vote no. It is one of the first big tests of South Africa's new rule that makes shareholder votes on executive pay binding (BusinessTech/Bloomberg).

What exactly is being voted on?

Shareholders are being asked to approve a bespoke long-term incentive for Engelbrecht at the annual general meeting (AGM) on 6 November. It comes after an earlier one-off scheme, called an executive super stretch incentive, was valued at R36.4 million for Engelbrecht and R14.2 million for chief financial officer Anton de Bruyn (BusinessTech/Bloomberg).

Source: BusinessTech/Bloomberg

Why are investors pushing back?

Institutional Shareholder Services (ISS) and Glass Lewis, the two largest proxy advisers, recommend voting against the new plan. ISS said Shoprite had not given a convincing enough reason for another large incentive and questioned "the repeated use of exceptional remuneration arrangements" (BusinessTech/Bloomberg).

ISS also recommends rejecting this year's pay implementation report. Its concern is that the remuneration committee used a special modifier so a short-term incentive paid out in full even though performance fell below the threshold target (BusinessTech/Bloomberg).

Several large foreign funds have said they will vote against, including the California Public Employees' Retirement System, the California State Teachers' Retirement System, Florida's State Board of Administration, Canada's British Columbia Investment Management Corp., funds under the New York City Comptroller and Norway's KLP. Their stakes are small (BusinessTech/Bloomberg).

What does Shoprite say?

Shoprite declined to comment beyond its published remuneration report and AGM notice. Board member Christo Wiese, who sits on the remuneration committee, defended the award and said it "isn't something that was just decided in two seconds" (BusinessTech/Bloomberg).

Wiese controls about 41% of the voting rights through ordinary and deferred shares, according to ISS, while the Public Investment Corporation (PIC) is the largest shareholder (BusinessTech/Bloomberg).

What does a binding pay vote mean?

Until now, JSE shareholder votes on pay were advisory. Amendments to the Companies Act now make votes on remuneration binding and raise the stakes for directors who oversee pay. This AGM season is the first under the new rules (BusinessTech/Bloomberg).

Investors have rarely rebelled so far. Average support for pay implementation reports at the 200 biggest JSE-listed companies rose to 89.6% in the latest year, while median CEO pay climbed 9%, according to PwC figures cited by Bloomberg (BusinessTech/Bloomberg).

Why should you care if you're not a shareholder?

Many South Africans own Shoprite shares indirectly through pension funds, retirement annuities and unit trusts. The PIC, which manages government employees' pensions, is Shoprite's biggest shareholder (BusinessTech/Bloomberg). How your fund votes on executive pay is usually set out in its stewardship or proxy voting policy, which you can ask your fund for.

The business itself is doing well. Shoprite's dividend and headline earnings per share both rose about 12% in the year to June, and its shares are up 26% this year (BusinessTech/Bloomberg).