Not all shareholders are perfectly happy with Naspers at the moment, which made the group’s AGM on Friday a livelier affair than usual, even if the voting on all important issues was, as always, determined before the meeting.

Asset managers at Old Mutual took the unusual step last week of announcing before the meeting that they would be voting against one or more of the three resolutions dealing with the policies of the remuneration of Naspers’s executive management. Their main gripe is that the executive share incentive scheme is still largely based on the performance of the Naspers share price, rather than on specific goals and performance indicators based on the performance of the company itself.

It is bound to be a touchy issue for Naspers executives given the historic story of the remuneration package offered to Koos Bekker (now chairman of Naspers) when he first joined Naspers as chief executive in 1997. His remuneration was unique in that he received no salary, but negotiated a generous amount of share options to be exercised at different prices and dates.

Bekker could afford to work for “free” as he was already a millionaire at the time after the quick success of M-Net, a company he founded with the help of Naspers. The sharp rise in the Naspers share price from R17.50 at the time of its listing in 1994 to the current R3 419 made Bekker a multi-billionaire. Forbes estimates his net worth at US$2.3-billion at current share prices.

Back then, shareholders were the last to complain about executive salaries and managers’ share options as they enjoyed the ride to wealth as well.

Management reiterated at Friday’s meeting that Naspers has grown from a publisher of newspapers and magazines a few decades ago to one of the biggest global consumer Internet companies in the world.

“Naspers is now one of the world’s top 10 Internet companies by market capitalisation, with around a fifth of the people on the planet using our products and services,” Naspers announced to the shareholders packed into Cape Town’s International Convention Centre a few blocks away from the Naspers head office.

Demanded a better explanation

Despite the astounding growth, shareholders began to realise that the bulk of the increase in the Naspers share price and its executives’ wealth was as a result of the strong increase in the value of Tencent rather than managers’ hard work and strategic decisions — and demanded a better explanation of executive salaries.

In addition, the corporate world in general and the investment community in particular are much more aware of corporate governance and ethics with the rise of environment, social and governance (ESG) issues.

Rob Lewenson, head of ESG engagement at Old Mutual, says Old Mutual has engaged with Naspers regularly since it first raised its concerns about the conditions under which Naspers alloted shares and share options at its 2017 annual general meeting.

Lewenson said that Naspers has made changes to the remuneration policy of senior management and directors over time, but that the biggest part of executive remuneration is still based on the performance of the share price.

“As disclosed in the remuneration report tabled at the AGM, share awards based on performance measurements will only account for 45% of the total long-term incentives awarded from the 2020 financial year,” says Lewenson.

“Every share issued in terms of the remuneration policy should be based on this performance measurement.”

These performance indicators should include measures such as growth in earnings, new projects, return on capital and the efficient use of capital. There is little incentive for management to take big strategic decisions if remuneration is mostly based on the performance of the share price, says Lewenson.

Naspers’s annual report shows that Resolution 11 asked shareholders to ratify a change in the company’s trust deeds to allow for a second type of award of shares and share options to employees that will be based on a performance condition — referred to as performance share unit (PSU) awards.

Naspers does not, however, disclose what this performance condition will entail. The resolution only says that PSU awards will have a performance condition attached to them, being a “condition which is specified by the board in the relevant award letter”.

Some shareholders are unhappy that the existing scheme, not linked to specific performance conditions — referrred to as restricted stock units (RSUs) — will be retained.

A second concern is that allotments under the RSU scheme are short-dated. “RSU awards vest in four equal tranches over a four-year period and are not subject to the satisfaction of any performance conditions,” according to the resolution tabled on Friday. In effect, some shares are awarded within 12 months.

Little support

Analysis of the voting results shows that this particular resolution, seen as a step in the right direction, found agreement with nearly 81% of the N shareholders voting in favour. Needless to say, it was supported by 100% of the A shares.

The other two resolutions touching on executive pay had to rely on the thousand votes per A share to be approved.

The endorsement of the company’s remuneration policy received support from only 41% of the N shareholders and the implementation of the policy was agreed to by only 38.9% of N shareholders.

That only 31% of N shareholders voted that unissued shares be placed under the control of directors also indicates that shareholders are unhappy with share allotments, for whatever reason.

Lewenson says an important issue for Old Mutual as a large shareholder is that Naspers could do more to unlock value for investors.

“They have started the process by selling some of the Tencent shares, listing MultiChoice and Novus separately on the JSE, and are currently in the process of listing the international interest on the Amsterdam stock exchange — but the rump of the value is still locked up within Tencent,” says Lewenson. “There should be an incentive to close the gap between the Naspers share price and the underlying value of its assets.”

Lewenson admits that Old Mutual’s vote against all of the resolutions “is a vote of protest” and would not have changed the outcome in this case. He said before the meeting: “The resolution will be passed due to Naspers’s unique shareholder structure.”

Naspers explains its shareholder structure on one of the final pages of its annual report. In short, the A shares held by Keeromstraat Beleggings and Nasbel have a thousand votes each, compared to the listed N shares that have only one vote. In this way, Keeromstraat and Nasbel account for 54% of the voting pool, enough to pass most of the resolutions to be tabled at the AGM.

Naspers points out that its share structure with differential voting rights is not unique in the world and gives a long list of media and information pedlars that use similar structures. Google and Facebook, as well as several newspaper publishers, have such voting pools.

Naspers media relations director Shamiela Letsoalo says the company has engaged extensively with shareholders, which resulted in the group significantly enhancing disclosures and making changes to its remuneration structure.

‘Measured on performance’

“Overall support has increased since the 2017 AGM and we remain committed to continuing to engage with our shareholders on this topic,” says Letsoalo. “Executives are measured on their performance in the short term and longer term.”

At the 2017 meeting, less than 25% of N shareholders voted in favour of the remuneration report and policy, which increased to 48% in the next year. Notwithstanding the improvement, shareholders were still unhappy — and without the A shares, management would have had to make even more drastic changes.

Ben Pieters, director of Proxy View Services and known as a shareholder activist who analysis companies’ corporate governance, says Naspers is one of the companies his firm watches closely, being one of the largest firms on the JSE.

He says Proxy View does not attend meetings as such, and does not vote because it does not hold shares in any of the companies it reports on. It acts as an adviser to shareholders on complex issues such as corporate governance and the issue of executive remuneration.

“We issue a report that we call the Voting Paper that discusses issues, and take a stand on how we would have voted at an AGM,” says Pieters. “In South Africa, the analysis of corporate pay is an issue we look at closely as disclosure falls far behind international standards.”

Unfortunately, Proxy View’s reports are only available to fund managers and shareholders who subscribe to its services.

Naspers announced that all the resolutions passed at the AGM, including the most important resolution — to allow the listing of Prosus in the Netherlands.