Sports Direct: The final chapter?

On Wednesday afternoon we were treated to the latest and, for this year at least, final instalment in the saga of Sports Direct’s remuneration policy, as it played out at the AGM.  Contrary to at least one press article, there were no fireworks but the results certainly are worth looking at.

The important votes from our point of view were the new binding vote on the forward-looking Directors’ Remuneration Policy and the vote on the re-election as a director of the Chair of the Remuneration Committee.

Though the Remuneration Policy is slightly equivocal on whether there is enough flexibility to allow Mike Ashley to receive some remuneration from the company, Mike Ashley seems to have taken the view that he won’t be taking any form of remuneration from Sports Direct for the duration of the policy, meaning that he was entitled to use his majority voting power to back the policy.  The result was that the binding remuneration policy vote was carried with a handsome majority (87.5% in favour).  However, if you exclude Mike Ashley’s votes from the calculation, the result is closer with only 62.5% in favour.

This follows Mike Ashley’s decision in July to rule himself out of participation in the controversial Sports Direct 2015 Bonus Share Scheme.  The scheme was apparently originally designed with Mike Ashley in mind (with high rewards but with very demanding performance targets) but will now be available for the other executive directors and employees.  The scheme was approved by a majority of shareholders in July (when Mike Ashley did not vote), and there seems to be no reason why he should not have used his votes this time round to support it. 

Sports Direct will now have to consider whether a “significant” percentage of votes were cast against its Remuneration Policy. There is no set percentage for this.  The GC100/Investor Group guidance suggests 20% as a rule of thumb but makes it clear that a lower percentage may be appropriate for some companies.  Unless Sports Direct courts controversy by deciding that the dissenting votes were not significant, next year’s Remuneration Report will need to set out the reasons given by shareholders for the negative votes and explain what the company has done about those issues.  It would be interesting to see whether the 2015 Bonus Share Scheme was a significant factor in the voting or whether other factors (such as the flexibility on the package that could be offered to new directors) were also important.

Finally, just a quick word about the re-election of Dave Singleton, the Chair of the Remuneration Committee.  In an earlier blog post we speculated whether Mike Ashley would vote on the re-election of the non-executive directors after a change to the Listing Rules.  This change requires companies with a majority shareholder, such as Sports Direct, to use a dual voting system for the re-election of non-executive directors (i.e. counting the votes with and without those of the majority shareholder).  In any event, under the transitional provisions, Sports Direct missed having to use the new voting system at this year’s AGM by a few weeks.  Mike Ashley did vote for Dave Singleton’s re-election but even without his votes the vote in favour was 83.7%.