Morrisons under fire over Pennycook pay perk

By Rupert Steiner for the Daily Mail
Updated: 02:48 EDT, 2 June 2011

Supermarket giant Morrisons has come under fire from Britain's leading investor body over plans to gift shares to a key executive worth 230% of his base salary.

Sweetener: Morrisons was keen to woo executive passed over for the top job

The Association of British Insurers, which represents big City investors, has issued an 'amber-top' alert to its members over a pay proposal which may breach best UK corporate governance practice.

The alert is a signal to consider issues that should be weighed before voting on pay proposals at next week's annual meeting.

Britain's fourth-largest grocer offered finance director Richard Pennycook shares worth £1.25m, assuming certain criteria are met, as a sweetener to prevent him from leaving.

At the end of 2009/10 former chief executive Marc Bolland resigned to take up the reins at rival Marks & Spencer.

The Morrisons remuneration committee considered it 'essential to secure Pennycook's services' as finance director after he was passed over for the top job by Bolland's successor Dalton Philips.

The committee was keen to avoid losing Pennycook at the same time as bedding in a new chief executive.

It justified this in the annual report saying: 'While this is an unusual arrangement, the committee considers that the granting of this award is in the long term interest of shareholders and is satisfied that it is appropriate.'

It also took the decision after consulting a number of its biggest shareholders, thought to have supported the decision.

This appears to be backed up by the ABI which states, in a report seen by the Mail, that 'members are usually sceptical of the merits of retention awards, although, in this case, shareholders consulted were supportive of the proposal'.

The award vests in two years and is subject to Pennycook's continued employment and earnings per share growth meeting or exceeding the growth in the retail price index.

However, corporate governance advisory firm Pirc has taken a harder stance over the award.

It said: 'The EPS targets attached to this award are not challenging and the restrictive period is not sufficiently long.' It also warned the group's earnings targets attached to a long term incentive plan were 'not sufficiently challenging'.

Pirc said: 'In addition, it has the potential to render the [incentive plan] ineffective, particularly as less challenging EPS targets are attached to the award. For these reasons, an oppose vote is recommended.'

The company declined to comment.