Sage Group: pensions down, shareholdings up

FTSE 100-listed accountancy software provider Sage Group plc holds its 2019 AGM on 27 February at which a new remuneration policy will be put to the shareholder vote. The policy was last approved at the 2016 AGM and received 97% shareholder support.

Sage’s Remuneration Committee has highlighted three key policy changes which it believes will result in greater alignment with executive operational execution of the Company’s move to a cloud business.

Firstly, recurring revenue growth replaces organic revenue growth as a performance measure under the annual bonus and recurring revenue will have an increased weighting of 70% under the LTIP (previously 50%).

Secondly, a return on capital employed (ROCE) underpin has been added to the LTIP to encourage greater focus on financial discipline following a number of recent acquisitions.

Thirdly, variable pay will be re-balanced with the bonus potential increased by 50% of salary and the LTIP reduced by 50% of salary. The Committee considers the re-balance as necessary in order to drive short-term income while the Company accelerates its cloud-based products. The LTIP will remain the largest variable pay element at 200% of salary with the bonus capped at 175% of salary. Shareholding guidelines for executives have been increased from 200% to 250% of salary,

Addressing Pension Fairness

The issue of pay fairness and differential executive pension contributions has come under increasing investor scrutiny over the years. As such investors will likely welcome the proposed pension reduction policy of 15% of salary (previously 25%) for current executives and future appointments.
CEO Steve Hair will see his contribution rate reduced from 25% to 15% of salary, President Blair Crump will have a contribution rate of 3.5% salary and CFO Jonathon Howell a contribution rate of 10% of salary.

The policy change also aligns with recent changes in management. CEO Steve Kelly resigned on 31 August with CFO Steve Hare appointed as interim COO & CFO to run the business until the appointment of a new CEO. Hare was granted a “step-up” allowance of £186,750 in addition to his £522,000 salary in light of his increased responsibilities. Outgoing Kelly will continue to be paid on a monthly basis his base salary of £810,000 and benefits until his employment ceases on 31 May 2019, after which he will receive in lieu of notice his base salary, pension contributions and a car allowance for the remaining three months of his notice. The change in leadership coincides with recent performance concerns with executives entitled to a bonus award for the year voluntarily waiving the awards due to financial and share price performance.

Steve Hare was appointed as CEO on 1 November with non-executive Jonathan Howell appointed as CFO in December. Hare’s CEO salary rate has been set at £770,000, 5% below his predecessor, and Howell’s at £535,000, 2% above Hare’s CFO salary rate. Howell is also set to be granted shares worth between £979,000-£1,174,000 to compensate him for forfeited awards at his former employer Close Brothers Group.