Oasis criticises TRG CEO’s ‘disproportionate’ £674,450 base salary: Shareholder Oasis Management has criticised The Restaurant Group (TRG) chief executive Andy Hornby’s “disproportionate” £674,450 base salary as it said the board’s remuneration policy “fails to deliver value and should not continue”. Oasis has called for an end to the restrictive share plan (RSP) and said it will vote against the policy, the remuneration report and the re-election of renumeration committee chair Zoe Morgan at the company’s annual general meeting (AGM) next month. Oasis stated: “Oasis Management, a circa 12.3% shareholder is deeply concerned by TRG’s remuneration policy, which continues the misalignment between pay and company performance as seen in this year’s remuneration report. TRG chief executive’s disproportionate pay has failed to promote value creation as shares have fallen by circa 73% since Andy Hornby became chief executive, a markedly greater decline than suffered by industry peers. Oasis urges fellow TRG shareholders to vote against items two, three, and ten – the remuneration policy, the 2022 remuneration report, and the re-election of Zoe Morgan (chair of the remuneration committee) – at the upcoming AGM, delivering a clear message that the board’s approach to remuneration ignores shareholder feedback, fails to deliver value and should not continue. In February 2023, Oasis publicly expressed its concerns regarding TRG’s prolonged share price decline, continuing negative perception in the market, governance failures and the necessary steps needed to begin the process of rebuilding value for shareholders. In March 2023, TRG communicated its medium-term strategic plan, as well as the board’s intentions for the ongoing governance of the company in its 2022 annual results announcement and 2022 annual report. Far from the strategic plan being seen as an important and welcome move towards restoring market confidence, the TRG share price instead slumped by circa 15% in response. The 2022 annual report then compounded shareholder pessimism as governance, much like strategy, remained effectively unchanged. In 2020, the board prematurely revised management’s remuneration policy to replace the company’s performance-linked long term incentive plan (LTIP) with a restricted share plan (RSP) – a scheme that awards shares on a time-vesting basis, without any direct connection to company performance or shareholder returns. Despite the uncertainty posed by the pandemic (noted by TRG as the reason for the switch), institutional investors expressed significant concerns regarding the nature and timing of the change. Investors’ strong misgivings were reflected in opposition from proxy advisors and circa 37% of TRG shareholders casting dissenting votes when the policy was put to a vote in October 2020. Without the support of a small number of TRG’s largest holders, the proposals would have failed heavily. Since the policy was adopted, the two subsequent remuneration reports have also been heavily opposed: circa 20% voted against in 2021, and circa 32% voted against in 2022. Inexplicably, the board, led by seasoned non-executive director Ken Hanna, has requested approval of the 2023 remuneration policy, which importantly retains the RSP, in spite of: it clearly being strongly opposed by a significant proportion of the company’s shareholders; the newly communicated company strategy being based around clearly defined medium-term Ebitda improvement targets; and the original rationale regarding the uncertainty of the pandemic abating completely (Oasis notes that the board justified the 2020 revision to the policy ‘given the exceptional events of 2020 related to covid-19’. Retaining the RSP will continue to reward the senior management team with a potential grant equivalent to 125% of their salary in shares, subject only to the discretion of the remuneration committee against a vague, qualitative and entirely subjective underpin, instead of linking to performance through transparent stretching KPIs. The proposed continuation of the RSP is even more unpalatable in the case of Andy Hornby, who already receives a highly generous base salary which is disproportionate compared with the size of TRG, as well as relative to the wider workforce. The effect of a high base salary is further exacerbated alongside bonus opportunities and share award grants which are both calculated as multiples of the base salary. Deloitte’s annual benchmarking exercise of remuneration levels in the FTSE 250 places Andy Hornby’s base salary – £658,000 in 2022 – as higher than the median level for companies with a market capitalisation of between £1.9bn and £3.2bn (some five to ten times larger than TRG). The company’s current market capitalisation stands at just £296m; at the time of the Deloitte publication, the company’s market capitalisation was just £225m. A separate Deloitte study of FTSE SmallCap identifies £428,900 as the average chief executive salary for a company within the £201m to £350m market capitalisation band. Despite his salary already being very generous, the board has seen fit to increase Andy Hornby’s salary for 2023 to £674,450 (a 2.5% increase); this comes despite the company remaining loss-making for the last four years (statutory losses before tax: FY22: £86.8m, FY21: £35.2m, FY20: £132.9m, FY19: £37.3m). Giving any chief executive the comfort of a disproportionately high base salary, as well as failing to include any performance criteria within the pay element responsible for incentivising long-term value creation, would be highly questionable at best. In the case of TRG, it can only be considered tone deaf and wholly inappropriate, serving only to further distance management from the experience of long-suffering shareholders who have endured damaging capital value destruction along with zero dividends or returns of capital since the current chief executive’s tenure began. In March 2023, the board communicated its medium-term strategy after Oasis publicly called for clarity on strategic direction. To describe the strategic plan as underwhelming and failing to restore market confidence would be an understatement. This further demonstration of the board’s unwillingness to recognise the need for more fundamental changes resulted in the share price falling by circa 15% in response. This lost opportunity to turn the tide on market sentiment rubs more salt in shareholder wounds sustained over the past five years, exaggerated by the £547m of shareholder equity capital raised – an amount far exceeding the company’s current market capitalisation and raised at prices much higher than the current share price. Shareholders who participated in those equity raises have seen the value of their investment collapse by circa 70% since 2018. Longer-term shareholders have suffered even worse performance, losing a staggering circa 93% since the 2015 peak, while currently receiving no dividends, buybacks or capital appreciation. Regrettably, management is simply not aligned with shareholders; ownership of TRG shares by the chief executive and chief financial officer at the beginning of 2023 was 47% and 61% of base salary, respectively, despite a board-mandated expectation of executives holding shares equivalent to 250% of salary (a threshold that increased from 200% on introduction of the RSP). The Board needs to act rapidly to close this widening gulf between management’s perspective and the ruinous shareholder experience, especially when the new strategic plan has received such a poor reception from the market. TRG continues to be one of the worst-performing listed UK leisure stocks and we believe it will remain so until executive management is held to account and incentivised to perform. Recurring failures in pay structures despite years of clear shareholder feedback, should not be tolerated and indicate a fundamental failure of the non-executive members of the Board (both longstanding and newer members) – especially the chair of the remuneration committee – in heeding these concerns and performing their duties. Oasis therefore intends to vote against the following resolutions at the company’s upcoming AGM: item 2 – approval of the remuneration policy; item 3 – approval of the remuneration report; and, item ten – re-elect Zoe Morgan (chair of the remuneration committee). We urge all shareholders to express their views directly and exercise their votes at the upcoming AGM to deliver a clear message that the board’s existing approach to remuneration is failing to deliver for shareholders and should not continue. Despite our significant concerns, Oasis continues to believe in the underlying potential of TRG’s business and has a strong desire to work with the TRG Board to overcome the company’s strategic and governance challenges; we hope the board will take bold steps in the near future to address the concerns of its shareholders and begin a virtuous cycle of value creation for all stakeholders.” A TRG spokesperson said: “TRG has performed strongly compared with the casual dining sector in recent years. Wagamama and pubs have consistently outperformed the market, leisure has been carefully restructured to maximise cash flow and we have successfully re-sized concessions so it is well placed to benefit as air travel continues to recover. As is normal, we are consulting with major shareholders ahead of our upcoming AGM on our remuneration policy.”