JLL shareholder questions firm’s corporate governance

One of JLL’s main shareholders has hit out over the $10.7m (£8.3m) exit package of outgoing chief executive Colin Dyer.

Generation Investment Management, the investor co-founded by former US presidential candidate Al Gore, has expressed concern in a letter to corporate governance adviser Institutional Shareholder Service.

Mark Ferguson, co-chief investment manager at GIM, which holds a 7.5% stake in JLL, said: “The $11m-plus compensation package awarded to the outgoing chief executive [Dyer] seems wholly inappropriate. In our opinion, he has a poor execution track record (for example, the disappointing total shareholder returns over the past three years) and, as a result, we believe this is a clear example of pay for failure.”

Over the past year JLL’s share price has risen by around 7%. Rival CBRE has seen a rise of around 20% over the same period.

GIM also questioned the pay packet of Dyer’s replacement, Christian Ulbrich, who is to have his base salary raised to $750,000, saying “compensation is weighted heavily towards short-term performance, with a mere 30% weighting on long-term performance”.

Current president Ulbrich is due to take on the role of chief executive at the start of October and Dyer will continue as an adviser until the end of the year.

Ferguson went on to criticise JLL’s future objectives, stating that none of them were tangible.

“The ‘2020 objectives’ do not contain a single tangible metric,” he said. “Despite (or perhaps because of this), during a dreadful period for shareholders, the compensation committee awarded 105% of targeted compensation for this objective. The ‘adjusted EBITDA’ target deserves special mention. Management are able to hit this target simply by acquiring companies regardless of whether their acquisitions create value for shareholders. If this wasn’t bad enough, they deduct any expenses associated with these acquisitions (hence the word ‘adjusted’). Yet even with this extraordinarily low bar, management still missed its targets in 2016 but the compensation committee saw fit to award them 93% of targeted compensation for this objective.”

He concluded that as a result of this the compensation committee was no longer representing the interests of shareholders and that GIM would vote against JLL’s compensation plan.

JLL has since responded to Generation’s claims in a filing to the Securities and Exchange Commission, stating that despite being a “longstanding and valued shareholder of JLL” the board at JLL “respectfully disagrees with Generation’s assertions.”

The board defended its decisions leading to Colin Dyer’s retirement package. In the statement the board said it “stands firmly” behind the compensation actions including the remuneration for services which Dyer was “not obligated” to give beyond his term as chief executive and which the board “valued highly”.

It said: “The compensation committee and the board served our shareholders’ interests by ensuring a smooth, flexible, and effective transition for the incoming chief executive… Mr Dyer’s twelve-year tenure as chief executive was transformational for JLL; over that time period annual revenue grew by almost six times and annual net income grew by five times.”

It went on to defend the compensation programme for all its current executives, Ulbrich. It stated that the programme has been “carefully and appropriately designed to drive financial and operational performance by our executives that will best serve the long-term interests of our shareholders.”

The company said that any payments that had been made all correlated to the company’s financial performance, and that non-equity incentive compensation that was paid to the executive group last year was 37% like-for-like decrease than the previous year to reflect the group’s financial performance.

It concluded that there had also been some factual inaccuracies in some of Generation’s statements. It said: “Generation is not correct in its statements that we ‘awarded 105% of targeted compensation’ for our 2020 Objectives or ‘93% of the targeted compensation’ for Adjusted EBITDA performance, since in fact the funding and other payout mechanics of our long-term incentive compensation plan resulted in actual payments that were 70% of the original targets for the participants. Generation also claims that we deduct all expenses from acquisitions when we determine Adjusted EBITDA for compensation purposes, but in fact the only cash expenses we deducted were related to one acquisition that we pursued but ultimately did not close.”