What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
The co-op’s director remuneration committee has unsurprisingly recommended no change to board and council fees.
Fonterra reported a $196 million net loss last financial year; weaker global dairy prices have also forced the co-op to lower its forecast payout for milk, from an opening forecast of $7/kgMS in May to a $6.25 to $6.50 range.
The remuneration committee of six shareholders meets every year to set director and councillor fees. It reported to Fonterra shareholders in the notice of annual meeting mailed out last week.
The committee notes that between 2014 and 2016 it recommended directors’ remuneration remain unchanged, “appropriate given the very challenging economic conditions experienced by shareholders”.
In 2017 the committee noted market data showing that, generally, director remuneration had increased significantly since 2013 when Fonterra directors had last had an increase.
Shareholders last year approved a committee recommendation to raise fees. Fonterra’s chairman fee was lifted by $25000 to $430,000; the directors’ fee went up by $10,000 to $175,000.
Fonterra’s shareholders council chair received a $9500 pay rise last year, taking his fee to $100,000. The council’s deputy chair fee went up $4450 to $60,000 and councillors got a $5000 lift in fees to $35,000.
The committee says it is important to set “realistic fee levels” to ensure highly skilled directors are attracted and retained.
The committee engaged Ernst & Young to report on director remuneration practices in Australia and New Zealand.
“The committee reviewed the EY report and assessed workload expectations and market trends including the remuneration structure and levels of other comparable companies,” it says. “It discussed relativities between different roles, the nature of the company and the division of workload between the board committees.”
Shareholders last year also approved a recommendation to set up a discretionary pool fund of $75,000; directors can be remunerated for additional duties, workload and the people/culture board committee.
The committee noted that the $75,000 discretionary pool of fees put in place in November 2017 had not been used to date.
Fonterra directors don’t receive fees for committee memberships, and their fee was considered below market, the committee notes.
“The committee also noted that the 2018 general market trend was for a small increase in directors’ remuneration.
“It determined that with the discretionary pool set up in 2017, the board has the tools to adequately remunerate directors for additional workloads including multiple committee memberships.”
Another try
Marlborough farmer Murray Beach is having another go to change Fonterra’s share system.
The proposal was mailed out to farmers last week with Fonterra’s annual general meeting notice.
Beach filed a similar proposal in 2015, which was rejected by 91% of shareholders.
The ‘new share proposal’ wants Fonterra to fix its share price at $2/share.
“If we fix the share price, it stabilises the price,’’’ Beach says. “It can’t go up, it can’t go down, so it stabilises your security as well; you know exactly where you are year to year.”
Fonterra’s board and shareholders council have recommended shareholders vote against the proposal.
The result will be announced at Fonterra’s annual general meeting at Lichfield site, South Waikato on November 8.
