Shareholders give Macmahon the big ‘no’ vote

Shareholders in engineering and mining contractor Macmahon Holdings gave the company a bloodied nose at its annual general meeting this month, with shareholders who hold 19 per cent of shares voting against the company’s remuneration plan.

The ‘no’ vote was unusually high and contrasted with the very high support for resolutions not related to remuneration.

Shareholder approval has always been required for share and option schemes, but from this year companies must also put their remuneration report to a vote.

The vote is not binding but does provide an opportunity for shareholders to register a protest if they believe the chief executive is getting paid too much.

The ‘no’ vote at Macmahon occurred despite the company’s excellent performance in recent years, with strong growth in profit and shareholder returns.

Managing director Nick Bowen is also one of the best paid chief executives in Western Australia and he is due to receive much higher remuneration in future years.

His 2005 base income of $747,000 was surpassed by only eight other chief executives in the state. From December 1, his base salary will increase to $850,000.

In addition, he earned a cash bonus last year of $508,500.

To put this in perspective, Macmahon has a market cap of about $300 million, which means 30 other companies in WA are bigger.

Monadelphous has a similar market cap, and its business is similar in scale and complexity, yet its chief executive Rob Velletri earned only $386,000 last year.

On top of his 2006 cash income, Mr Bowen will be granted four million Macmahon shares, valued at $2 million, for nil consideration.

The company explained that Mr Bowen earned these shares because he achieved a defined performance target.

Specifically, Macmahon “comfortably exceeded” the total shareholder return of three direct competitors – Leighton, Downer EDI and Henry Walker Eltin – by more than 10 per cent over the past two financial years.

The resolution to approve the share issue was passed, but 5 per cent of the voted shares were negative.

Shareholders were also asked to approve the issue of four million performance shares, valued at $1.2 million, which are part of Mr Bowen’s new remuneration package.

Once again, the resolution was approved but with nearly 9 per cent of the shares voted in the negative.

Mr Bowen will be able to convert the performance shares into ordinary shares at no cost if Macmahon beats the TSR of its peer companies by 10 per cent over the next three years.

The peer group has been widened to comprise Leighton, Downer EDI, Clough, Transfield, Coates Hire, United, Ausdrill and Monadelphous.

Chairman Richard Carter said the board had obtained independent advice and that Mr Bowen’s new package “reflects the current market price for leaders of his stature”.