46% of Shoprite shareholders said no. The CEO's R176m award passed anyway

Shoprite's special share award for CEO Pieter Engelbrecht has been approved, even though 46.19% of ordinary shareholders voted against it at the 6 November AGM. The plan passed with 70.91% of all votes because founder Christo Wiese's high-voting deferred shares all went in favour (Shoprite SENS results, Moneyweb).

The award gives Engelbrecht 525,000 performance shares, which Moneyweb valued at more than R176 million at the current share price (Moneyweb).

How did the vote actually split?

Shoprite has two classes of voting shares. Ordinary shareholders, which include the big local and foreign funds, were close to evenly split on the CEO plan. Wiese's deferred shares voted 100% in favour on every resolution (Shoprite SENS results).

Source: Shoprite AGM results on SENS

So even on ordinary shares alone, the award scraped past 50%. The deferred shares turned a narrow win into a comfortable one.

Why does Wiese's vote count for so much?

The deferred shares were issued to Wiese in 2000 at a nominal 0.1c each. They give him about 32.2% of the votes even though he owns 10.68% of the group, and they fall away automatically if his stake drops below 10% (Moneyweb).

At the AGM, 264,969,112 deferred shares were eligible to vote, against 546,041,454 ordinary shares (after treasury shares) (Shoprite SENS results).

What is the award for?

Shoprite says the CEO Executive Share Plan is meant to reward a set of time-bound strategic goals, including technology projects, building future leaders and an "orderly succession process", and to keep Engelbrecht for a six-year period (Moneyweb). The group points to his 29 years at the company and Shoprite's market share gains under his leadership.

Engelbrecht's total pay for the latest financial year was R117.8 million, up 35% on the year before (BusinessTech/Bloomberg).

Who told shareholders to vote no?

Proxy advisers ISS and Glass Lewis both recommended rejecting the plan. ISS said Shoprite had not given a compelling enough reason for another large incentive, and also objected to a "sales growth modifier" that let a short-term bonus pay out in full even though performance came in below the threshold (Moneyweb, BusinessTech/Bloomberg). Several US, Canadian and Norwegian pension funds said before the AGM they would vote against (BusinessTech/Bloomberg).

Does the new binding pay vote change anything?

Under the amended Companies Act, shareholder votes on the pay policy and the pay report are now binding, but they only need more than 50% support to pass. Before the change, a vote below 75% only obliged a company to engage with shareholders, with no real consequence (Moneyweb).

All three of Shoprite's pay votes cleared 50%, so the award and the pay report stand. Reported covered the run-up to the vote here.