Aurizon feels wrath of shareholders

Rail transport company Aurizon (ASX: AZJ), formerly QR National, has received a first strike against its remuneration report, and a backlash over options granted to CEO Lance Hockridge.

The granting of share options to Mr Hockridge was described by the Australian Shareholders Association (ASA) as ‘excessive’, considering he received a 34% rise in his total pay package to $6.1 million and making him one of the best paid CEOs in Australia.

19% of votes were cast against the performance rights, but 28% of shareholders voted against the remuneration report, delivering the company a ‘first strike’ and in danger of a board spill, should it receive a second strike.

It’s not the first time Aurizon has been castigated over its remuneration reports either. The company has consistently received criticism from shareholders since it floated on the ASX three years ago.

Chairman John Prescott has faced calls to step down from the ASA, because it believed there needed to be “boardroom accountability after three successive years of remuneration controversy.” Independent director Russell Caplan also received a large protest vote over his re-election, with 11% of votes against him.

Proxy adviser to institutional investors, ISS had also called for a no-vote on the remuneration package, because Aurizon has not raised the hurdles for long-term bonuses after starting a $1.1 billion buyback of shares in October last year. Buybacks tend to raise earnings per share, as there are less shares on issue, but earnings per share is also a key measure of remuneration for Aurizon executives. It means executives have to do very little to see earnings per share rise, to achieve their targets and getting paid their bonuses.

Aurizon attempted to justify the remuneration package by citing that its top 80 managers would not receive any increase in their fixed pay this year. I wonder how they feel about the CEO’s increase, but then again maybe they will receive bonuses instead.

And it does seem that directors’ interests are not aligned with shareholders. Despite having more than 2.1 billion shares on offer, directors only hold slightly more than 1 million shares collectively.

Aurizon is not the only company to feel the wrath of shareholders. SCA Property Group (ASX: SCP), Southern Cross Media (ASX: SXL) and Super Retail Group (ASX: SUL) all received first strikes this AGM season.

Foolish takeaway

When directors don’t appear to be acting in shareholders’ best interests, it’s a reminder that they may also not be acting in the best interests of the company. Add in directors holding very little of their own cash at stake and Aurizon is one company retail shareholders might want to pass by.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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