UK Governance Watch

At JD Wetherspoon shareholders may hold concerns with the level of independence on the board. At the conclusion of the FTSE 250 pub owner and operator’s AGM the board will comprise three executive directors, Chairman Tim Martin - the company founder and controlling shareholder - and four non-executive directors. Of the four non-executive directors, three have served on the board for more than nine years, the tenure threshold for independence set out in the UK Corporate Governance Code. Therefore, on a strict application of the Code, there is only one demonstrably independent director on the board. The board, however, considers the non-executives to retain independence despite their length of tenure.

Shareholders will also note that the board does not undertake an externally facilitated board evaluation every three years as recommended by the Code. Instead the board conducts an annual self-evaluation, however, the process and outcome of the evaluation undertaken during the year has not been disclosed. Explaining its decision regarding external evaluations, the board considers the use of a third party could be a “dangerous step for a board to take” due to the lack of knowledge of the company’s business and/or directors the third party may have.

On remuneration, shareholders will note that while the performance targets used to determine awards under the deferred bonus scheme have been disclosed, the targets used for the annual cash bonus plan have not been disclosed. The company also operates a third incentive plan which provides for annual grants of shares worth 25% of salary to executives, with CEO John Hutson and Personnel & Legal Director Su Cacioppo receiving an additional 5% (30% in aggregate) because of their length of service. The shares vest after three-years without reference to performance. In addition, while the company has not disclosed individual salary rates for executives the remuneration committee has reported Finance Director Ben Whitley has been granted a 11.4% salary increase compared to 2% increases granted to the other executives. The committee explains the increase is in view of Whitley’s increased seniority and contribution, however, shareholders may hold concerns with the gearing impact the increase will have on other elements of pay.

Governance Issues at AGMs: 9 Nov - 15 Nov 2018