MENU

Reject Shop shareholders protest MD pay

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.

Savvy investors are now seeking growth in smaller companies. Discover two stellar small-cap opportunities now, in our brand-new research report, “2 Small Cap Superstars” — simply click here to download your FREE copy.

More reading

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.