JLL shareholder Generation Investment Management has renewed its attack on the company’s executive pay structure and called for the sacking of chairman Sheila Penrose.
Last week 7.5% owner GIM slammed the outgoing former chief executive’s $10.7m exit package saying that it was “wholly inappropriate” and “pay for failure”.
In its latest letter to clients ahead of the company’s AGM on 31 May, it said that although it thought JLL was a “high-quality, sustainable business” it had been “concerned for some time about the structure of JLL’s executive compensation programme” and as a result would vote against Penrose’s re-election.
GIM said: “JLL has failed to reach its full potential – primarily due to execution issues related to a poorly designed incentive programme.” It highlighted rapid revenue growth between 2004 and 2016 of 16% per annum but a fall in net income and a rise in share count resulting in diluted earnings per share growth of only 11% per annum. It also highlighted its concern over debt ballooning to $1bn from $30m in 2004 as a result of acquisitions.
According to GIM, JLL is “at an inflection point” under new chief executive Christian Ulbrich who has been urged by the investor to implement “a more rigorous capital allocation process, improved operating leverage and cash flow conversion” that “could unlock substantial value”.
GIM has called for five features for defining compensation at the company in the future:
- Balanced scorecards, with both financial and non-financial metrics, reflecting the interests of shareholders, customers, employees and other stakeholders.
- Financial metrics that are long-term and correlated with shareholder interests (eg return on capital, cash flow per share).
- Outsized rewards only for strong performance, paid largely in shares subject to meaningful holding periods.
- Transparent terms, verifiable and easily understood by all stakeholders.
- Limited board discretion for upward adjustments when performance has been weak.
When GIM made its initial protest against Dyer’s exit package, JLL responded by saying that it stood 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”.
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