Another windfall for Naspers executives

The news that Naspers CEO Bob van Dijk and chief financial officer Basil Sgourdos have been granted R176-million in performance share units is not, in itself, surprising. Under its new long-term incentive plan, Van Dijk received R86-million worth of performance stock units (PSUs) in dollars, while Sgourdos received R44.6-million worth (also in dollars). These PSUs will vest in full after three years, if the performance condition is met.

The astonishing things is that shareholders were asked to approve this — and did — without knowing what the performance condition was.

In its announcement to the market, Naspers notes that “at the time of the publication of the Naspers FY19 remuneration report, the human resources and remuneration committee was still considering the final design of the PSU performance condition and as such, was unable to disclose the details of the performance condition for the initial PSU award to be granted to executive directors. The committee has settled the final details.”

At the AGM, only 41.3% of holders of ordinary N shares voted in favour of the company’s remuneration policy. Only 38.7% of those holders voted in favour of its implementation. Both non-binding resolutions passed — at over 80% — thanks to the much higher-voting A shares.

On the resolution to amend the group’s restricted stock plan trust, which allowed it to replace its existing restricted stock unit (RSU) plan with PSUs, it received votes in favour of 80.5% of ordinary N shareholders. The resolution passed with a total of 94.5% in favour. At that time, it said: “PSU awards will have a performance condition attached to them, being a condition which is specified by the board in the relevant award letter.”

Now that the awards have been made, tellingly, Naspers does not disclose the specific performance condition in Wednesday’s announcement to the market.

‘Bespoke peer group’

This, it says, is available on its website. It says that “after listening to shareholders’ input on the matter, the committee settled on a bespoke peer group”.

The problem, explains Naspers, is that “several equity indices such as MSCI Emerging Markets, Nasdaq, etc were considered, none of which reflected the global nature of (Naspers’s) operations, without skewing too much towards US or non-tech companies”.

The peer group it will measure performance against over the three-year period for the PSUs comprises: Amazon, Alphabet (parent of Google), Facebook, Netflix, PayPal, Booking Holdings, eBay, Twitter, Expedia, Snap (parent of Snapchat), IAC, Wayfair, Zillow Group, Qurate Retail and Groupon in the US, Ocado and Auto Trader in the UK, Adyen and Cnova in the Netherlands, Zalando in Germany, and Schibsted in Norway.

It says while it considered long-term incentive practices at Alibaba, Altaba and Baidu as well, these “were removed from the peer group for PSUs to avoid a skew towards Chinese Internet” as Tencent is “not included” in the e-commerce share appreciation rights (SAR) valuation. Listed companies in which Naspers has an interest, such as Make My Trip and Delivery Hero, were also removed to avoid circular references.

A well-massaged section on its website contains a number of videos where the chair of its human resources and remuneration committee, Craig Enenstein, answers questions on Naspers’s “approach to remuneration and how we make pay decisions”. It must be noted that these 13 videos and accompanying transcripts are in stark contrast to how the group tackled issues around its remuneration previously.

Thanks, it says “in part to thoughtful shareholder input, this year, we are announcing our intention to introduce a third​ longer-term incentive element for executives, performance share units”.

The introduction of these PSUs, contends Enenstein, “further strengthens the link between executive pay, closing the discount on NAV (net asset value) and shareholder outcomes”. This is because they “incentivise the increase in value of Naspers Internet business excluding Tencent, and the delivery of superior returns over time to shareholders”.

Naspers says its “investment horizon, whether it’s organic or acquisitive investment, is long-term, and measuring (the PSUs) over three years means that any short-term market movements will not have a disproportionate impact”.

The group already has two long-term incentive plans for executives: share options and share appreciation rights over the Internet assets, excluding Tencent (commonly referred to as the e-commerce SAR scheme).

‘Biggest lever’

“Naspers stock options incentivise the increase in the value of the entire Naspers group including Tencent over time… Share appreciation rights associated with the Internet business incentivise the value of Naspers’s listed and unlisted internet businesses over time excluding Tencent by driving growth and profitability. This is the biggest lever management has to create value.”

Enenstein says Naspers can’t only award PSUs from now as “we are still a complex group and each element of our variable, or ‘at risk’ compensation scheme serves a particular purpose”.

In total, Van Dijk will be awarded $13.5-million (approximately R191-million) and Sgourdos $7-million (approximately R99-million) in long-term incentives in FY2020. Both of these totals include the PSUs.

It must be noted that following the separate listing of Prosus, Van Dijk and Sgourdous will be remunerated by both companies. In its prospectus, Prosus notes that its “executive directors are also executive directors of Naspers” and that their remuneration will be split 30/70 between Naspers and Prosus.

In the 2020 financial year, Van Dijk and Sgourdos will be paid a total of up to $2.7-million and $2.1-million respectively by Prosus and Naspers, depending on performance.

This equates to approximately R39-million and R30-million respectively in base pay and short-term incentives.