Smurfit Kappa hits back at recommendation urging investor revolt over pay report

Smurfit Kappa has hit back at a recommendation by an influential investor advisory group that shareholders should reject the paper packaging giant’s 2022 pay report, after top executives received a maximum bonus payout linked to health and safety measures even after the death of a subcontractor.

One-tenth of the annual bonus consideration of group chief executive Tony Smurfit and chief financial officer Ken Bowles is linked to health and safety measures.

Glass Lewis, the advisory group, took issue with the fact that Smurfit Kappa awarded a maximum payout under the health and safety metric last year, given the subcontractor fatality recorded in the company’s annual report. Mr Smurfit’s total remuneration amounted to €5.77 million, including €1.67 million of cash and stock bonuses, while Mr Bowles’s package came to €3.15 million.

Glass Lewis said a company “should reduce the safety component down to zero in light of fatalities, as receiving a payout under the safety element of the [short-term incentive] in a year when there have been fatalities risks sending a mixed message to the executives as to the company’s overarching safety goal”.

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However, a company spokesman said: “The company rejects the comments made which do not reflect the safety culture and governance practices at Smurfit Kappa.”

A note posted on the company’s website last week, following the circulation of the Glass Lewis report, said its total recordable incident rate (TRIR) has declined by 50 per cent since 2018. There was a 13.6 per cent improvement in 2022, more than double the company’s 5 per cent target, it said.

“This is a testament of the initiatives, focus and culture which exists throughout the organisation, from the operations right up to board level,” it said. “In addition to this key metric, the group has specific focus on certain identified high-risk areas which includes the management of contractors, with ongoing, tailored initiatives and training programmes being introduced. While we are proud of our achievements we will continue to focus on improving safety until we deliver zero accidents on an ongoing basis.”

While the TRIR does not include subcontractors, the remuneration committee has discretion to override formulaic outcomes where these are considered necessary, including in the event of a fatality.

Another leading proxy advisory firm, Institutional Services, did not raise any issues regarding Smurfit Kappa’s remuneration report as it circulated guidance late last week on how shareholders should vote on various resolutions at the group’s upcoming annual general meeting on April 28th.