Scentre Group faces protest vote at annual meeting

Scentre Group, owner of the local Westfield mall empire, has drawn fire from two major proxy houses that have recommended against its remuneration report at its ­annual general meeting to be held on Thursday.

ISS and CGI Glass Lewis have recommended against the group’s pay practices, setting the scene for a clash with investors after the company narrowly avoided a first strike last year as the coronavirus pandemic emerged.

The stance has also drawn out big investors, with the influential $US286.8bn ($376.8bn) California-based CalSTRs fund already advising Scentre it intends to vote against the remuneration report.

The COVID crisis hit major shopping centres as they were left reeling in the wake of lockdowns and battled with struggling tenants. It also accelerated the shift to online shopping and added to the woes of department stores.

Shopping centres have fought back on the tide of rising consumer confidence and Westfield malls are being re-pitched as lifestyle venues where people also go for entertainment and dining.

But both proxy advisers were critical of its pay practices after Scentre crashed to a $3.73bn loss in 2020 as it dealt with the pandemic and wrote down its portfolio by $4.25bn, while its funds from operations fell 42.5 per cent to $766.1m.

Scentre shares lost 27.4 per cent of their value in 2020, but the company avoided a dilutive equity raising by striking a major debt deal. The shares have recovered from their $1.43 low as the pandemic broke out to close at $2.83 on Thursday.

Chief executive Peter Allen’s pay fell to $4.67m last year, down from $7.48m in 2019.

But ISS and CGI recommended a vote against the group’s remuneration practices. Investors flagged concerns at last year’s meeting, where 21.2 per cent voted against the 2019 remuneration report, with another 6.2 per cent abstaining. Scentre executives did not get a rise in fixed pay and took a 20 per cent cut in response to the pandemic for three months.

But ISS expressed a “high level of concern” about misalignment after undertaking a pay-for-performance analysis of Mr Allen’s package when compared to rival companies. It also cited poor disclosure of quantified targets in short-term awards and said several of the performance measures appeared to offer bonuses for “day job” duties.

“Securityholders may have concerns that these performance measures are expected requirements in the CEO’s duties for which substantial fixed remuneration is on offer and not ‘bonusable’,” ISS said.

ISS said nondisclosure of long-term incentive targets did not allow investors to independently assess if performance and executive reward was aligned with investor expectations and out­comes. It also cited repeated decisions to amend the terms of long-term awards by the board.

CGI was also against the remuneration report citing excessive awards and disclosure issues.

“Overall, we do not see major issues with the remuneration structure itself. However, while we understand the board’s decision to recognise management’s efforts during the pandemic, we have concerns with the short-term incentive awards,” CGI said.

“Scentre’s decision to grant such size of STI bonuses, despite its significantly impacted performance, does not adequately align with the shareholder experience and are therefore too generous.”

ISS also highlighted the company’s move not to proceed with a 2020 long-term incentive grant approved by shareholders, and instead offer significant retention awards to executives. Scentre made the awards in September last year as the pandemic also hit the value of their longer-term incentive schemes.

Mr Allen was granted 1.65 million retention awards, with a fair value of $2.9m, half vesting in 2023 and half in 2024.

ISS also recommended against an equity grant that it estimated could be worth up to $4.54m to Mr Allen in coming years, saying the quantum of the long-term incentive award was well above comparable rivals.