UK Individual Shareholders Society
ShareSoc Advises Investors to Vote Against Reckitt Benckiser Remuneration
ShareSoc (the UK Individual Shareholders Society) is advising its Members to vote against the Remuneration resolutions at the forthcoming Annual General Meeting of Reckitt Benckiser (RB) on 5th May.
RB has performed very well in terms of shareholder returns since 2000. However, in ShareSoc’s view:
The remuneration of the CEO Rakesh Kapoor is indefensibly high (£23 million in 2015, £56 million since his appointment).
This level of remuneration seems even more egregious when viewed against the background of Kapoor’s potential future equity incentives (his unexercised 1.8 million options have £34 million gains to date and his LTIPs would currently be worth £49 million if fully vested).
Share buybacks, which impact the EPS performance condition, raise further concerns.
The constitution of the Remuneration Committee, the majority of whom are themselves serving CEOs, is inappropriate and may favour generous awards.
RB has performed well in recent years as is shown in the annual report with a TSR of 126% from 1 Jan 2012 to 1 Jan 2016 (Rakesh Kapoor was appointed CEO in April 2011, so this is a relevant period).
ShareSoc consider the quantum of remuneration too high. Rakesh Kapoor has received £23 million in 2015 and £56 million since he was appointed CEO. The TSR graph on page 75 shows TSR of 209% over the past 7 years. Over this 7 year period period Rakesh Kapoor and the previous CEO Bart Becht were collectively paid £120 million. ShareSoc Director and remuneration spokesperson, Cliff Weight said “A reasonable, fair and adequate CEO remuneration would be less than half this amount.”
The earnings per share (EPS) target when the company is doing share buybacks is a concern. On 30 December 2015, the Company announced its intention to commence a 2016 ordinary share repurchase programme for up to a maximum consideration of £800 million, which would boost EPS by nearly 2%.
There is no requirement for the CEO to continue to hold shares after leaving the company (except for unvested options and share awards held at cessation). Cliff Weight commented “This is worrying in my opinion, as there are questions as to the sustainability of sales growth and profit margins. This is a £47 billion market cap company with only £8 billion sales, a very high (56%) profit margin and 15% ROCE; this makes their markets very attractive for new entrants.”
The remuneration report is long on good words (“I trust that you find this a clear and comprehensive report”, and “simplicity” is one of the remuneration philosophy principles). However, it is not until the fourth page that shareholders see that the CEO received £23.19 million in 2015.
The 7 year history of pay is not clearly laid out. Not until page 72 is it disclosed that the current chief executive Rakesh Kapoor has been paid £56 million since he took over as chief executive; and only by cross referring to page 75 does it becomes apparent that over the last seven years, the two chief executives of RB have been paid £120 million between them.
The CEO Rakesh Kapoor has options over 1.8 million shares, which are showing a gain to date of £34 million. His LTIPs over 726,772 shares would be worth £49 million at the current £67 share price if they all vested. Weight added ”With these existing incentives, I question why he needs to be given any more”.
For further information, please contact:
Deputy Chairman, ShareSoc