Pirc attacks Morrisons over executive pay policy

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The Independent Online

The corporate governance watchdog Pirc has attacked the executive pay scheme at Morrisons for being "excessive" and not challenging enough ahead of the grocer's annual meeting on 9 June.

Pirc also took umbrage at the £1.25m worth of shares awarded to Richard Pennycook, the finance director at the Bradford-based supermarket, as a sweetener to prevent him from following its former chief executive Marc Bolland to Marks & Spencer.

The advisory body urged shareholder to vote against the supermarket's remuneration report, citing areas of concern as the balance between reward and incentive. Pirc said: "Total variable pay is excessive both in theory and in practice although the remuneration package is in-line for the sector".

It also described the earnings per share (EPS) targets attached to the grocer's long-term incentive plan (L-tip) as "not sufficiently challenging", given brokers' forecasts for the upper and lower vesting points.

Similarly, Pirc said the EPS goals attached to Mr Pennycook's share award in March – equal to about 230 per cent of his base salary of £541,000 for last year – are not demanding enough and the timeframe is too short. His share award will vest in March 2013, subject to the group's EPS meeting or exceeding growth in the retail price index over the next two financial years.

Pirc said: "Such awards are not best practice as the existing L-tip should be a sufficient retentive measure. In addition, it has the potential to render the L-tip ineffective, particularly as less challenging EPS targets are attached to the award."

While Morrisons acknowledged the award was an "unusual arrangement" in its annual report, it "considered it critical to secure" Mr Pennycook's services, following the resignation of Mr Bolland towards the end of 2009. The grocer consulted with large shareholders over the award. Mr Pennycook, who joined in October 2005, has been a key architect of the impressive turnaround at Morrisons after its troubled acquisition of Safeway in 2004.

For the year to 30 January 2011, Morrisons grew profits by 13 per cent to £869m, on sales of £16.5bn.