Reject Shop shareholders protest MD pay

36% of shares voted against managing director receiving performance rights with low targets

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 17, 2013 2:12 pm AEDT

Shareholders in The Reject Shop (ASX: TRS) have angrily protested over the granting of 21,500 performance rights to managing director Chris Bryce.

36% of shares voted were against the issue of the rights, which was more than double the protest vote against the adoption of the remuneration report. It was also one of the strongest protest votes so far this AGM season. Shareholders had objected on the grounds that the financial hurdles were too low.

In order to receive the rights, Mr Bryce has been set a target of achieving compound earnings per share growth of at least 10% over a three-year vesting period, and a return on average capital employed (ROACE) over the period in excess of 20%.

The Reject Shop has opened near on 60 stores since the beginning of the year, and plans to open at least an additional 18 stores before June 2014. The company has in the past opened around 20 stores on average each financial year. But the demise of competitor Retail Adventures has allowed The Reject Shop to aggressively ramp up its store rollout program, doubling its annual store openings. Therefore, 10% growth in earnings per share shouldn't be that difficult to achieve, at least over the next two years just from sales from around 80 new stores as they mature, plus the existing network of around 300 stores.

Additionally, the company has also achieved a ROACE well in advance of 20% since listing, in some years making 50% plus returns.

The financial criteria carries a 60% weighting towards achieving the goal, with the remaining 40% in 'soft-target' areas of "Improved Occupational Health & Safety Performance", "Staff & Customer Satisfaction" and "Brand Development". The Reject Shop doesn't say how it will measure the results of these goals.

Shareholders were also likely protesting the board's decision to use its discretion and award 50% of performance rights granted in 2009, even though financial hurdles were not met thanks to the unexpected flooding of the company's Ipswich Distribution Centre in Queensland.

At the company's AGM yesterday, MD Chris Bryce noted that the company was still facing a tough retail environment, echoing recent comments from other retailers including Myer Holdings (ASX: MYR), David Jones (ASX: DJS) and Premier Investments (ASX: PMV).

Foolish takeaway

At the current price of around $17.90, the performance rights are worth more than $384,000 to Mr Bryce (although they could be worth much more in three years). While he may be doing an excellent job, it does seem as though the board have opted for 'fish in a barrel' targets.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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