AMP has a big retail investor base and so some direction on its dividend, particularly given the Australian Prudential Regulation Authority’s (APRA) recent directive to the banks about dividends, will help.
In a statement, an AMP spokesman said: “In developing the 2019 remuneration framework, performance hurdles and conditions attached, the board considered the exceptional circumstances facing the business. The remuneration structure has been designed to reflect the scale, complexity and challenge in AMP’s transformation.”
But the jury is out on the transformation strategy.
And while everyone agrees De Ferrari has a big job in front of him, he is being paid well. His total fixed pay of $3.9 million is more than double the median for an ASX 20-50 CEO of $1.76 million and the total remuneration package of $13.4 million is almost three times the ASX 20-50 median of $5 million, according to CGI Glass’s report.
At issue is the awards are structured in such a way that the long-term incentive award is set at between 4.5 times and 5 times fixed pay for most senior executives. Another concern is the performance hurdles are weak.
We also find the double long-term incentive granted to the CEO [Francesco De Ferrari] to be excessive.”
CGI Glass Lewis
To put it into perspective, the hurdles are such that half the awards will vest even if AMP underperforms by 10 per cent its peer index and 75 per cent will vest if its performance is in line with that of a peer ASX100 financial services index.
As CGI Glass said in its report: “That the awards vest for total shareholder returns performance below the benchmark index total shareholder return (TSR) performance compounds our concerns as to these awards. We also find the double long-term incentive granted to the CEO [Francesco De Ferrari] to be excessive in a year when he has been provided with so much value as a result of amending his sign-on awards.”
Ownership Matters says the value of the allocation to six AMP executives excluding the acting CFO was $28.6 million and was almost $65 million across all participants. “Shareholders should also note that as AMP no longer seeks shareholder approval for its CEO’s equity incentives the only way to register opposition to the structure of the transformation incentive is to vote against the remuneration report,” Ownership Matters says.
Such profound concerns about the amount and structure of the remuneration package relating to transformation incentives isn’t a good look for a company that has performed so poorly for its shareholders in recent years. In the past five years AMP’s share price has fallen from $6 a share to close at $1.30 on Friday.
Nor is it morale building for the rest of the company including some of its advisers who have been reeling over changes in Buyer of Last Resort (BOLR) arrangements, set out as part of its transformation strategy.
De Ferrari joined AMP as fresh blood in January 2019 to try and repair its battered reputation after some shocking revelations during the 2018 royal commission, including charging its clients fees-for-no-service and lying to the regulator on multiple occasions. The scandal resulted in a series of class actions, huge profit falls and massive fund outflows. During the royal commission, billions of dollars was transferred from AMP’s super funds to industry funds.
But De Ferrari’s strategy is far from foolproof. Indeed one of its key divisions, the Australian Wealth Management division, has been on a downward trend for more than six years.
The only source of net inflows is its North product, which is the company’s lowest margin product. All its other products, which charge higher fees, had outflows.
This was a problem for AMP long before the global pandemic.
Its latest results released on Thursday are a continuation of that trend, with the company recording a $1.9 billion net cash outflow in the March 2020 quarter. To fix the problem will require a sizeable reduction in fees in the other products, which would require a significant growth to offset the decline.
De Ferrari also needs to complete the sale of AMP Life business to Resolution Life for $3 billion. The market was told a month ago that it was confident the sale would proceed at a target date of June 30. It hasn’t backed away from this. Despite this, some investors said they were concerned it could be delayed and that would result in capital issues and a possible further renegotiated sale price.
AMP is also exposed to the risk of a further blowout in its customer remediation provisions which stood at $652 million at the end of 2019, given the banks have continually ratcheted up the size of their provisions for customer remediation. In the past year banks have put aside an estimated $6 billion in remediation costs.
Given it has one of the biggest army of advisers, it wouldn’t be a stretch to see it lift its provisions to between $2 billion and $3 billion. For now, it isn’t budging on its provisions.
With so many challenges, the board and its investor relations team will have their work cut out trying to convince shareholders not to vote against its remuneration package.
Adele Ferguson is a Gold Walkley Award winning investigative journalist. She reports and comments on companies, markets and the economy.