Cairn Homes investors urged to reject chief executive share bonus plan

Shareholders in Cairn Homes are being urged by a leading advisory company on corporate governance to vote against a move to include chief executive Michael Stanley in a long-term executive share bonus plan this year, ahead of schedule.

The plan follows on from a weak Cairn share performance in recent years resulting in founding directors missing out on millions of euro worth of shares under a lucrative incentive scheme tied to its June 2015 initial public offering (IPO). The stock price would have to rally strongly from current levels to trigger further share conversions under the founder stock scheme before its seven-year lifespan runs out in the middle of next year.

Institutional Shareholder Services has called on shareholders to vote against Cairn’s remuneration report at its annual general meeting (agm) on May 18th, saying the planned inclusion of Mr Stanley in a normal long-term incentive plan (LTIP) from this year “is not considered appropriate”. That is because the company said at the time of its IPO that founder directors would not participate in an LTIP for the seven-year duration of the founder stock scheme.

Cairn Homes, founded by Mr Stanley, his brother Kevin, and Scottish serial entrepreneur Alan McIntosh, floated with the most potentially lucrative incentive scheme on the Iseq, entitling the trio to up to 20 per cent of total shareholder returns, including share-price gains and dividends, over seven years.

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It allowed the three to convert 100 million of so-called founder shares into ordinary stock over the period, subject to a 12.5 per cent total shareholder return being achieved annually over the period.

Some 80 per cent of the shares had converted by mid-2018, and the founders had raised almost €50 million selling some of their shares between September 2017 and April 2019.

However, a weak share price performance since late 2018 has resulted in no founder-share conversions in the past two years. Mr Stanley has agreed, as a result of his planned LTIP inclusion, to waive any future entitlements under the founder-share scheme.

‘Ambitious growth targets’

A spokesman for Cairn said that including the chief executive in the LTIP now is “influenced by the inherently challenging external environment and by the ambitious growth targets” for the business over the coming years.

“The remuneration committee took the decision, following consultation with shareholders representing 80 per cent of Cairn’s issued share capital, that it would involve the CEO in the company’s LTIP,” he said.

“The reasons for the committee’s decision were that the CEO was on a fixed salary which has not changed in five years and which is below comparable market levels and that there was no long-term equity component to his package.”

While the company, where former banker John Reynolds is chairman, originally wanted to put Mr Stanley on an incentive plan with a maximum stock award of 200 per cent of his base salary, it reduced the cap to 150 per cent on foot of pressure from some major investors.

Glass Lewis, another major corporate governance advisory firm used by institutional investors, has had issues with Cairn’s founder share scheme in general in the past. However, it said that shareholders should be “reasonably satisfied” with the housebuilder’s rationale for including Mr Stanley in the company’s regular LTIP from this year.

Mr Stanley's total remuneration almost halved last year to €520,000 as the Covid-19 crisis led to a slump in earnings. Chief financial officer Shane Doherty, who joined in April as the pandemic took hold, was paid a total of €510,000.

Executives waived their entitlements to annual cash bonuses last year due to the pandemic, which also led to the axing of the shareholder dividend.