How 'misaligned' incentives are burning Whitehaven shares today

A shareholder is lashing out at Whitehaven Coal, demanding pay be more aligned with the interests of all shareholders.

| More on:
Miner with a light in the darkness as he moves coal

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Whitehaven Coal Ltd (ASX: WHC) shares have waned on Thursday as one shareholder takes matters into their own hands.

One of Australia's largest coal mining companies is now squarely in the sights of a fierce campaign to vote down Whitehaven's remuneration report. Surprisingly, it is none other than one of the company's own shareholders scalding the coal miner and its management.

As we slip past the close today, Whitehaven shares have limped 1.19% lower to $6.67.

Not a happy shareholder

Hailing from London, Bell Rock Capital is a hedge fund holding somewhere in the vicinity of $280 million worth of Whitehaven shares. While the position equates to a little less than a 5% stake in Whitehaven, Bell Rock is going big with an effort to change the executive pay structure.

Warren Buffett's right-hand man and Berkshire Hathaway's vice chair, Charlie Munger, once said, "Show me the incentive, and I'll show you the outcome."

It seems Bell Rock Capital took note of that one.

The hedge fund is highly critical of Whitehaven Coal's remuneration report, asking shareholders to join in voting against it at the upcoming annual general meeting.

According to Bell Rock, the proposed remuneration and incentives are not aligned with shareholders. Namely, the removal of total shareholder returns as a performance measure for the company's management.

The change would mean executives "could destroy the share price, cancel or reduce dividends, stop the share buyback, and still pay a healthy bonus to management", in the words of Bell Rock's Mike O'Mara.

It would be the first pay structure without total shareholder returns as a measurement of success since 2011.

Instead, Whitehaven has steered its bonus conditions more in favour of run-of-mine production and earnings before interest, taxes, depreciation, and amortisation (EBITDA) — increasing the weighting to these by 20% and 25%, respectively.

The newly weighted conditions lend themselves to making acquisitions and growing the top line. However, Bell Rock Capital is concerned that these can quite easily destroy shareholder value in the process.

As it turns out, Whitehaven is already in hot pursuit of BHP Group Ltd (ASX: BHP) Duania and Blackwater coal mines.

Furthermore, the hedge fund questions Whitehaven CEO Paul Flynn receiving a salary three times the average of his peers. According to the letter, the premium seems difficult to justify given the relatively poor performance of Whitehaven shares versus other ASX coal companies.

How have Whitehaven shares performed against its peers?

In the last 12 months, the Whitehaven share price has drastically underperformed fellow ASX-listed coal miners. After delivering a record profit at the end of 2022, Whitehaven has witnessed its share price tumble.

Source: Data by Trading View

In contrast, Stanmore Resources Ltd (ASX: SMR) has seen its share price perform strongly over the past year, gaining 37.6%, as shown above.

Meanwhile, a handful of other ASX coal miners have landed somewhere in between.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

A miner stands in front oh an excavator at a mine site
Broker Notes

Broker says buy the dip on ASX 200 uranium share with 69% upside

Shaw and Partners says this ASX uranium stock is trading at an attractive price point right now.

Read more »

Coal miner standing in a coal mine.
Energy Shares

This dividend stock is set to beat the ASX again and again

Depressed starting valuations may be of help.

Read more »

Miner looking at a tablet.
Energy Shares

Here's where this expert thinks the Pilbara Minerals share price is headed next

The ASX lithium share is facing profitability headwinds.

Read more »

Oil worker using a smartphone in front of an oil rig.
Energy Shares

Down 6% in October, what now for the Woodside share price?

After another month in the red, is there a light at the end of the tunnel for Woodside shares?

Read more »

Man restores power on a circuit breaker after electricity outage.
Energy Shares

Down 33%! Why this ASX 200 uranium stock is 'trading at a discount'

This ASX 200 uranium stock is materially undervalued by the market, according to a leading fund manager.

Read more »

A male electricity worker in hard hat and high visibility vest stands underneath large electricity generation towers as he holds a laptop computer and gazes up at the high voltage wires overhead.
Energy Shares

AGL share price dives 7% on broker downgrade

Broker Barrenjoey has released a note forecasting lower earnings for AGL between FY26 and FY30.

Read more »

View of a business man's hand passing a $100 note to another with a bank in the background.
Energy Shares

Woodside shares rise on $2.1 billion windfall

Let's see what the energy giant is selling to pull in these funds.

Read more »

A young man stands facing the camera and scratching his head with the other hand held upwards wondering if he should buy Whitehaven Coal shares
Energy Shares

What's going on with the Origin Energy share price today?

The energy giant's shares have slipped into the red on Thursday.

Read more »