Portfolio
Unlisted public company
Can a 140 year old unlisted public company find a way to reward its most senior executives that is both attractive to managers and acceptable to shareholders?
Background
Our client, a company with a 140 year history, has been a significant player in the building materials sector in Australia for decades. Although originally a family company, over generations the shares of the original founders have been dispersed widely and the business now runs as an unlisted public company with independent directors.
Competition for senior executive talent is strong and the Board recognises that an effective remuneration offer, including an attractive base and short term and long term incentive opportunity, is vital to attract and retain top talent.
The problem
But a few years ago the Group’s Long Term Incentive Plan (LTIP) was not performing well. Performance ignored the capital invested in the business and payments were often too strongly influenced by the targets set by the Board which, in a highly cyclical industry, are notoriously difficult to set one year in advance, let alone three or more years.
As a result, rewards were often out of line with shareholder or management expectations, putting strain on the relationship between shareholders, the Board and the executive and creating a considerable distraction from the ongoing management of the business.
The solution
The Remuneration Committee called on Juno Partners to undertake an independent review of the LTIP and make recommendations for change.
Drawing on interviews with senior managers and directors and our deep experience in incentive design, we outlined the key drawbacks of the LTIP and how they could be addressed to ensure more appropriate, defensible rewards were made, while still being highly attractive and motivating for management.
The record volatility in the building material sector over the past three years has tested the new LTIP, but it has performed very well, with Board and management – and shareholders – satisfied that rewards reflect sustained gains in performance. Attention has rightly returned to the opportunities for growth that lie ahead.