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Chemring Group could still face dissent over executive pay

Chemring Group, a specialist designer and manufacturer for the aerospace, defence and security industries, that was forced to engage with shareholders last year following a high level of dissent at its AGM over its remuneration practices may still not have done enough to meet investor concerns.

Last year there was a large 48.02% vote against its remuneration report. The main concerns then were the targets disclosure under the bonus scheme for executive directors and the way the long-term incentive plans (LTIPs) for directors were constructed. Manifest’s analysis of the company’s latest annual report ahead of its annual general meeting on 21st March found that while disclosure for the annual bonus has improved considerably in comparison to last year’s, the main structure of the LTIP being proposed has not changed.

Half of the LTIP scheme is based on performance related to earnings per share (EPS) and the targets were not disclosed in the annual report. Chemring stated that ‘The EPS performance condition for the 2016 awards has not been finalised at the time of completion of this report and will be disclosed to shareholders at the time the awards are granted.’ Manifest concludes that the construction of the scheme and the lack of disclosure is ‘pretty contentious given the level of dissent received last year for a similar reason’.

The company has been struggling financially and last month held a general meeting in which shareholders approved its proposal to raise approximately £80.8m by way of a rights issue to reduce its indebtedness. Manifest believes part of the shareholder disquiet last year was based on the remuneration committees use of discretion which pushed up bonuses in the past. The 2014/15 bonus targets were significantly changed part way through the year as a result of divestments made. This meant that bonuses were still paid out; whereas if the original targets had been stuck to no bonus would have paid out. 

The company reported that in March 2015, the remuneration committee consulted with the company’s largest shareholders on the feedback received on the directors’ remuneration report for 2014 and the proposed implementation of the remuneration policy for 2015, with particular reference to the performance measures to be adopted for the 2015 annual bonus plan. As a result of the feedback received, it confirmed that the financial underpin (EPS and cash) for the personal objectives element of the 2015 bonus plan would be set at the same level as the threshold for each financial target. The company said it had removed EPS as a bonus measure and replaced this with operating profit for the 2016 financial year.

The high level of votes against the remuneration policy last year meant Chemring was among the top five most disputed votes in 2015, according to Manifest analysis.

What do you think?