Johannesburg - Old Mutual shareholder Allan Gray said the insurer’s plan to offer CEO Bruce Hemphill a bonus equal to 10 times his base pay to split the group up may be the best way to align his interests with those of investors.
“You don’t want to the management team to have an incentive to deliberately delay the managed separation process,” said Leonard Kruger, a money manager at Cape Town-based Allan Gray, the company’s fifth-biggest investor with a 3 percent stake. “The executives may not recommend certain outcomes if their incentives aren’t in line with shareholders.”
Old Mutual’s Hemphill, who joined the company in November last year, said in March he will separate the London-based company into four separate businesses by 2018 so that it no longer trades at a discount to the combined value of its different divisions, effectively working himself out of a job.
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With proposed base pay of 900 000 pounds ($1.3 million) this year, Hemphill’s bonus for breaking the group apart could top 9 million pounds, according to data compiled by Bloomberg.
‘Push back’
“We met the remuneration committee and had a robust session,” Kruger said. We gave them some push back on criteria. We’ve been assured of the fact that the break up is an incredibly complicated process.”
Shareholders will vote on changes to the company’s remuneration policy at a general meeting on June 28, according to a notice released on Thursday. The board considered packages paid to peer companies and considered the views of some of its largest shareholders when setting the targets, the notice said.
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Old Mutual’s board is willing to defer half of Hemphill’s bonus for a year after the separation has been completed, Kruger said. The insurer plans to spin off its controlling stake in South African lender Nedbank Group to shareholders and separate OM Asset Management, its U.K. wealth operations and its emerging-markets unit. US-based OMAM has attracted potential buyers, Old Mutual said last month.
“Hemphill will have to leave something behind that can stand on its own two feet,” Kruger said. “There’s a case to be made here for huge value creation. We don’t know what the future holds and what markets might do, but we think the odds are in our favour.”
Old Mutual is the best-performing insurer on the FTSE 350 Life Insurance Index this year, having declined 0.9 percent compared with the average drop of 11 percent.
BLOOMBERG