I doubt Tabcorp shareholders will be too happy this morning. The chair of their board – you know that thing that is supposed to represent shareholders’ interests – is on the front page of the paper lambasting a shareholder vote against executive remuneration.
Her ire is misplaced. Dwyer thinks the message from shareholders is to avoid risk altogether:
“It is critical for the success of Australian businesses, the economy overall and in the interests of shareholders, that boards and management teams make considered investments to drive long-term growth and shareholder value.
“In fact, this is a key aspect of the board’s role. Not all these bets will pay off. However, it does not serve the interests of shareholders for boards and management to do nothing for fear of retribution.”
But that is not why there’s so much angst against executive remuneration. The problem is not that the board took a risk. It is that they don’t think there should be any consequences if that risk doesn’t pay off.
Two-sided risk and reward
Tabcorp’s board and management team decided to launch a business in the UK. It didn’t work. Shareholders lost $91m. Which is fine. It may well have been a risk worth taking. But that doesn’t mean management shouldn’t share in some of the pain.
Dwyer thinks the merger with Tatts Group is going to be different. “I think this transaction will prove to be a hugely important step for Tabcorp”. So much so that the board awarded the Managing Director $630,137 just for doing the deal.
Again, if the board think the Tatts transaction is going to be good for shareholders, they should do the deal. But no one should get paid until those benefits are proven. If they deliver the goods, pay the management team lots of money. If the deal doesn’t increase Tabcorp’s earnings per share, then suffer along with shareholders.
The message, Paula, is not to avoid all risk. Shareholders are just sick to death of one-sided payoffs. What you want is to pay a small fortune if the strategy fails and a large fortune if it doesn’t. That is not the way it is meant to be.
You could argue the same for fees with fund managers who don’t perform.
Correct, I would argue exactly that: Fuzzy future for fundies
Any chance to change forager international fund’s fee structure to align with forager australia fund’s fee structure? (Base + performance fee)
It’s possible. What benchmark would you suggest? Fixed 8% doesn’t seem feasible, as FX movements have such a large impact. So it would have to be relative to an index and it’s hard to find something relevant. Happy to hear suggestions.
Thanks Steve. I just want to start off by saying that I’m a loyal investor in forager since I’ve come across you since 2013 and have enormous respect for you and your team. I consider myself to be a novice investor at best so below are some of my views (which I coudl be completely wrong):
1) Fixed 8% benchmark – I actually sees nothing wrong with 8% even for the interntional funds as your investors are all australian investor and the absolute return in AUD is more relevant to us. Ideally (in a perfect world), if we could have a trailing (say 3 years) 8% p.a benchmark, that would be even more perfect in my view.
2) purpose of the performance fee: I think the purpose is to ensure the manager enjoy/suffer the same gain/pain as investors rather than too focus a specific equity index (which I think it’s actually quite dangerous given the performance of those index (e.g. growth outperform value) might distract the fund manager). If I have to pick one, I think the current MSCI WORLD IMI (AUD) is reasonable but not preferred as it is 61.45% driven USA market. ( and I invest in forager for the exact reason that I don’t want to have massive exposure to USA);
Above is just my view and I see forager as the guardian of my capital (not just for equity) who is able to generate reasonable return of rate with protection of capital as the priority. Therefore I don’t see the maximize of return (which is what the index are as they don’t take into account the underlying riskness of each stock) as the goal for puting money in your funds but to entrust you to protect my capital from a permanent loss.
Sorry I don’t have any good suggestions. Performance fee structure was the only ‘concern’ which made me thinking about my investments in the forager international funds.
Like our politicians,board members have had it so good for so long their commentary is now blatantly honest about their opinions of themselves.
Boards have never been held to account. How many ABC, Babcock, Centro, RHG, etc ,etc board members moved on to the next cushy gig before the rubble had settled.
The skin in the argument game is fine, but it creates another issue, two classes of shareholders. Those with information and those without.
As with past posts on here, the real issue is the regulator(s) don’t hold bad boards to account.
But while institutional shareholders have such a tight yet ambivalent grip on board positions, not much is going to change.
I’d actually say a large part of the problem is senior management and boards are:
1. Paid too much and
2. Part of a tight knit club where others getting in is kinda tough.
Of those, #1 is the bigger issue. Lower pay = less incentives overall to BS, which might lead to more thought and analysis instead of a desire for an instant win and more on to the next steaming pile of dung.
Hell just leave Steve alone!
Is it still company policy to have staff invest in Forager funds? I.e. they are not allowed to have exposure to direct equities only via the funds. I recall this from way back. Not sure if it is still the case. If it is, alignment between staff and shareholders is beautiful.
There was a great cartoon recently of a parent explaining to a child how CEO bonuses work; the example was feeding the seagulls all the chips you have AND they still want more.