Opposition to Naspers pay policy ‘camouflaged’

• Africa’s biggest company has been reaching out to sceptical shareholders in turnaround over remuneration concerns, investors say

For the past three years Naspers has avoided revealing the substantial level of opposition to its controversial remuneration policy by lumping its two classes of shares together when disclosing voting details, in what seems like contravention of JSE rules.

A trawl through the figures released after each of the past three annual general meetings indicates a higher level of opposition to remuneration than at any other JSE-listed company. In 2015 it appears that a hefty 55% of its N shareholders, who own the company’s listed stock with limited voting rights, voted against the policy. This increased to 63% in 2016 and 66% in 2017.

If abstentions are included, the level of opposition increases to 60%, 75% and 76% respectively, which is an unprecedented negative response by South African shareholders.

Some shareholders have been outspoken about the group’s executive pay policy, saying it unfairly and richly rewards executives for the performance of the immensely successful Chinese internet giant Tencent, in which Naspers holds a 31.2% stake but no management control.

Yet the high level of opposition from Naspers’ N shareholders has been camouflaged in the Sens statement released after each annual general meeting.

In 2017, Naspers disclosed that only 18.43% of shareholders voted against the remuneration policy and that 78.92% voted in favour. It achieved this by bundling its N shares and unlisted A shares together when it disclosed the details of voting at the meeting. One A share holds the same voting power as 1,000 N shares, meaning the minority A shareholders control 67.4% of the vote at any annual general meeting. At each of the last three meetings, the A shares voted in favour of the company’s remuneration policy.

When Business Day asked for a breakdown between the two classes of shares after the 2017 general meeting, it was told Naspers did “not publish data on how the two classes of shares voted, nor are we required to”.

This appears to be an incorrect interpretation of section 3.91 of the JSE’s listings requirements, which came into effect in 2015 and requires disclosure as a “percentage in relation to the total issued share capital of that class of the applicant issuer”.

Andre Visser, GM of issuer regulation at the JSE, said it was legally prohibited from disclosing details of any interactions it might have had with companies, but added, “we expect companies to provide the disclosure for each class”.

Shareholder activist Theo Botha, who engaged with the board at the 2017 general meeting, said institutional investors had become more critical about remuneration issues, “but in most cases the level of shareholder opposition does not go much above 30% at AGMs”.

In SA the vote on remuneration is nonbinding, but since 2017, companies have been required to engage with shareholders when the vote against the policy is above 25%. Naspers engaged extensively with its shareholders in the wake of the 2017 general meeting.

The group did not respond to requests for confirmation that it would release separate details of the A and N share voting at the upcoming annual general meeting on August 24, following shareholder pressure.

IT ACHIEVED THIS BY BUNDLING ITS N SHARES AND UNLISTED A SHARES TOGETHER

Naspers, which has been criticised in the past for its apparent disregard of shareholders’ concerns, has become far more willing to talk about issues such as remuneration, investors say.

About two-thirds of ordinary shareholders voted against the remuneration policy of Africa’s biggest company in 2017. However, the policy was approved thanks to Naspers’s dual-class share structure, which gives certain investors far higher voting rights than others.

Since that meeting, Naspers has been actively engaging shareholders on the matter — partly on the premise that if it improves disclosure, investors will value the company closer to its stake in China’s Tencent.

There had been a “complete 180, from ‘Does this matter’ to ‘Okay, it really does matter – what do you want to see, what’s lacking, how can we best get that into our remuneration report, and what level of granularity do you need?’” said Robert Lewenson, head of environment, social and governance engagement at Old Mutual Investment, which voted against Naspers’s pay policy in 2017.

Naspers had listened to shareholders and significantly raised disclosure levels, he said.

The length of Naspers’s 2018 remuneration report was doubled to 24 pages, while changes were made to the remuneration committee. Further, as the pay policy now includes clawback provisions, the company can recoup awards made to executives. CEO Bob van Dijk will be required to hold 10 times his base salary in Naspers shares for the duration of his tenure, a requirement with which he already complies.

But some market commentators said the share options and share appreciation rights that vested to Van Dijk in 2017 were excessive. If he were to exercise the rights on his long-term incentives now, Van Dijk would receive net proceeds of about R747m. He was awarded the share options in 2014 when the Naspers share price was R1,155 a share, Vestact said in a note.

“The agreed-on incentive package was that he could buy 284,031 shares a year at around R685 a share…. At the time it was awarded, that valued the incentives at [about] $10m a year — fair I would say?”

But with the Naspers share price having nearly trebled since, the value of Van Dijk’s share options have soared.

Vestact said Van Dijk would continue to get paid out shares in coming years, adding that he would have options on 1-million Naspers shares when his incentive scheme was complete.

He was getting the shares at an enormous discount to the prevailing Naspers share price.

Had the Naspers share price collapsed after Van Dijk joined — “many investment analysts at the time were predicting this” — the pay issue would not have arisen as his share options would be worth zero.

“It is only due to the massive success of Naspers that this is a talking point,” Vestact said.