Cochlear suffers first ‘strike’

More than 30% of shareholders voted against Cochlear Limited’s (ASX: COH) remuneration report today, which included the grant of share options worth more than $1 million to CEO Chris Roberts.

That has handed the hearing implant maker its first strike under the government’s controversial two-strike rule. If more than 25% of shareholders vote against its remuneration policy in two consecutive years, it triggers a so-called board spill, in which directors can be forced to stand for re-election.

The strike price for the options was set at $62.78, despite not vesting for three years and compared to the last closing price of $71.18. That means there’s absolutely no incentive for the CEO to earn those options, as they are already profitable.  The award of the options was also despite the company reporting a 68% drop in net profits for the 2012 financial year, following a voluntary recall of its latest hearing implant, the Nucleus CI500. The company suffered large costs as it recalled the CI500 products and had to increase production of a replacement implant.

The Australian Shareholder Association (ASA) had raised concerns over the issue with Cochlear’s chairman prior to the meeting, and announced that it had intended to vote against the resolution.

116 companies face a second strike this year, according to the Australian Financial Review, including News Corporation (ASX: NWS), Stockland (ASX: SGP) and CSL Limited (ASX: CSL).

Cochlear chairman, Rick Holliday-Smith has apologised to shareholders, suggesting that the company should have been engaging with shareholders much earlier. Despite the hiccup, Cochlear looks set to have a much better 2013 financial year. As the world’s population ages, more and more people want to maintain their hearing. In developed markets, the over 65s age bracket is the company’s fastest growing sector.

If you only invest in one company this year, make it our “Top Stock for 2012-13”. Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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Motley Fool writer/analyst Mike King owns shares in Cochlear and CSL. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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