Shoprite in hot water with investors over R36.4 million special incentive for CEO who was paid R117.8 million

Investors in South African equities face an early test of their new power to cast binding votes over pay when Shoprite asks shareholders to approve another multimillion-rand incentive plan for its CEO.

The world’s two biggest shareholder proxy adviser services, Institutional Shareholder Services and Glass Lewis, are urging investors in Africa’s biggest supermarket retailer to reject the new plan for CEO Pieter Engelbrecht at its 6 November annual general meeting.

They are questioning the repeated use of exceptional awards on top of Shoprite’s existing incentive programs.

And some of North America’s biggest investors have said they will take their advice.

ISS said Shoprite hadn’t provided a sufficiently compelling rationale for adding another substantial incentive and raised concerns about “the repeated use of exceptional remuneration arrangements.”

It also recommends that investors reject this year’s implementation report, as the remuneration committee applied a special modifier that resulted in the short-term incentive metric paying out in full even though actual performance fell below the target threshold.

The challenge comes during the first AGM season since changes to South Africa’s Companies Act made shareholder votes on remuneration binding and increased the potential consequences for directors overseeing pay.

Until now, investors have shown little inclination to rebel.

Average support for remuneration implementation reports among the 200 largest Johannesburg-listed companies increased to 89.6% in the latest year, even as median CEO remuneration climbed 9%, according to PwC.

That’s almost three times the inflation rate. 

Shoprite declined to comment beyond its published remuneration report and AGM notice.

At Shoprite’s AGM last year, 95.61% of ordinary votes cast supported the implementation report.

The 2024 version received only 74.3% support, below the 75% support level that triggers shareholder engagement.

Investors are now being asked to approve a bespoke long-term incentive for Engelbrecht after another one-time plan — a so-called executive super stretch incentive — was valued at R36.4 million, and CFO Anton de Bruyn at R14.2 million.

Engelbrecht’s total earned remuneration rose 35% to R117.8 million in the latest financial year, including the incentive plan.

Some of the world’s largest investors have said they will object. 

The State Board of Administration of the Florida Retirement System, Canada’s British Columbia Investment Management, the California Public Employees’ Retirement System, Christian Brothers Investment Services and the California State Teachers Retirement System are among those indicating they will vote against the new incentive. 

Funds overseen by the New York City Comptroller, which oversees about $326 billion, indicated they will vote against the two remuneration proposals.

So will KLP, Norway’s largest pension company with $90 billion under management.

While holding small stakes in Shoprite, the institutions together oversee almost $2 trillion. 

At least four of the investors said they will also vote against the remuneration report.

Shoprite has posted strong results, with its dividend and earnings per share excluding once-off costs both rising about 12% in the year through June.

Its shares have climbed 26% this year, making it the top performer on the seven-member FTSE/JSE Personal Care, Drug and Grocery Stores Index.

Public Investment Corporation is the largest shareholder in the company, but billionaire Christo Wiese controls about 41% of the voting rights through his ordinary shares and a separate class of deferred shares, according to ISS.

Wiese, who sits on Shoprite’s remuneration committee, defended the award, saying the company had provided a sufficiently compelling rationale for the additional incentive.

He said the decision had been carefully considered by the committee and its advisers.

“This isn’t something that was just decided in two seconds,” he said, describing the committee’s independent directors and advisers as “extremely good.”

Wiese also compared Engelbrecht with former Shoprite CEO Whitey Basson. Recalling his response to criticism of Basson’s remuneration, Wiese said he had been willing to “happily pay a billion rand” for every executive of his calibre.

“If that applied in the case of Whitey Basson, it applies as much to Pieter Engelbrecht,” Wiese said.