Interactive Investor

Sports Direct to overhaul bonus scheme

3rd April 2014 10:29

Ceri Jones from interactive investor

Sports Direct shares fell and then rose marginally on Thursday morning as investors took heart that the new terms of Mike Ashley's long-debated bonus reward will be more demanding.

Late on Wednesday the retailer's board announced it had abandoned attempts to wave through a £73 million bonus package for the firm's founder, when it became clear the proposal did not have sufficient shareholder support.

Shareholders had already rejected one previous proposal because of concerns over related-performance targets, while another was canned before a vote.

The bonus package, worth 8 million shares, was due to be put to a vote on Friday but that meeting has now been cancelled. It is a long-running side show that might well be consuming excessive management time.

The company now plans to seek approval for a new share bonus scheme with more aggressive targets to be voted on at Sports Direct's annual general meeting in September. The proposal is that the new scheme, a company-wide bonus scheme, would grant initial options to eligible staff on more than 25 million shares in the group, or about 4.2% of its stock.

It would pay out if the retailer makes profits of £480 million in 2016, £570 million in 2017 and £650 million in 2018. These are ambitious targets compared with anticipated underlying profits for this year of £272 million. Tomorrow's canned proposal had a target close to the consensus for the year to April 2014, which is all but over, as well as one for April 2015.

Dave Singleton, chairman of the remuneration committee, said the outcome was particularly disappointing given that a 60% majority voted in favour of the original scheme proposed in September 2012. The company plans to write to shareholders fleshing out the detail.

Some investors have said they would prefer to see a dividend so that Ashley, who owns about 60% of the company, could be rewarded alongside other shareholders. Sports Direct is one of only a few FTSE 100 companies that does not pay a dividend.

Ashley is credited with implementing generous staff bonus schemes at the firm. In 2010 all full-time staff of two years' standing were promised free shares worth 25% of their salaries if profit targets were achieved in 2009. Staff on controversial zero-hours contracts have not been eligible, however.

Sports Direct now sells more than one in every four pairs of trainers in the UK, has a history of acquiring and turning around brands including JJB Sports and fashion stores Republic, USC, Flannels and Cruise.

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