THE Jefferson Smurfit Group has agreed to changes in its recently announced bonus scheme for chairman and chief executive Dr Michael Smurfit following pressure from fund managers.
Some of the maximum potential payout to Dr Smurfit under a £10 million long term scheme will be clawed back if the company does not perform well in relation to its peers in the paper and packaging industry. The annual bonus scheme, under which Dr Smurfit can get up to £2.5 million per annum based on the profit performance, remains unchanged.
Fund managers had withheld their voting proxies from the board for this week's annual general meeting pending the outcome of talks on the bonus scheme and other issues. They objected to pay outs based only on increases in the Smurfit share price and dividends paid to shareholders.
In advance of its a.g.m. on Thursday, the group clarified elements of the package to institutions. It also agreed to amend the long term bonus scheme for Dr Smurfit to include criteria based on the performance of other paper and packaging companies. In addition, it has agreed to take account of relevant institutional guidelines when renewing the contract arrangements for the chairman and chief executive.
When the Smurfit annual report was released, the report from the group's compensation committee showed that Dr Smurfit could get a bonus of up to £20 million over a four year period if targets were achieved. The group has not revealed how much Dr Smurfit received in 1995, but he is likely to have received the bulk of the £12.6 million paid to directors. Market sources estimate he may have got £9-£10 million.
Fund managers objected to the new long term bonus scheme because payments to Dr Smurfit would be based on increases in the total return to shareholders. This is based on increases in the group share price plus increases in the dividends paid over a four year period from January 1st, 1996.
The bonus plan involves a once off payment to Dr Smurfit at the end of the period if total shareholder return rises by 11.5 per cent per annum compound. He would get the maximum payment of £10 million if the total return to shareholders equals or exceeds 18 per cent per annum compound. He could also get up to £2.5 million per annum under the annual incentive plan.
Fund managers objected to shareholder return being the sole basis of assessing the long term bonus. Led by Standard Life, they argued that the growth required could be achieved through a rise in stock markets and through group dividend policy.
Smurfit declined to comment. It is believed it considered total shareholder return a relevant measure after record annual profits but under performing shares.
