Senior Wesfarmers executives have paid the price for the group’s failed foray into the UK and Ireland home improvement market, underperformance at Target and weaker earnings at Coles.
While Wesfarmers shareholders saw the value of their shares rise 23 per cent in fiscal 2018, former and current Wesfarmers senior executives missed out on millions of dollars of cash bonuses and share based incentives after failing to meet performance hurdles or after major asset impairments.
Wesfarmers’ bottom-line profit plunged 58 per cent to $1.19 billion in 2018 after the conglomerate booked $1.4 billion in losses and write-downs from Bunnings UK and Ireland and wrote down the value of Target by $300 million.
Excluding impairment charges and one-off items, underlying net profit from continuing operations rose 5.2 per cent to $2.9 billion, beating consensus forecasts.
The largest punishments for the BUKI losses were meted out to former chief executive Richard Goyder and former chief financial officer Terry Bowen, who both left in November 2017.
Mr Goyder and Mr Bowen did not receive any annual incentives in 2018 as financial hurdles were not achieved and both agreed to forfeit any payments in relation to their strategic hurdles.
Mr Goyder received none of his cash bonus in 2018, after receiving $4.07 million in 2017, no equity based short term incentives, while the value of equity based long term incentives plunged to $372,188 from $4.2 million the previous year.
Mr Goyder did, however, receive termination payments of $968,720. This took his total remuneration for the five month period to $2.79 million compared with $12.1 million in the full year 2017.
Mr Bowen did not receive a cash bonus ($2.2 million in 2017) or short term equity based incentives (vs $46,941) and the value of his long term equity based incentives fell to $279,772 compared with $2.5 million in the full year 2017.
Mr Bowen received $950,196 in termination payments, taking his total remuneration to $1.9 million for the five month period compared with $6.68 million in the full year 2017.
Outgoing Coes managing director John Durkan, who handed the reins today to Steven Cain, saw his total remuneration fall 13 per cent to $4.9 million after Coles earnings fell 6.7 per cent in 2018 and 13.4 per cent in 2017.
Mr Durkan received a $990,00 cash bonus (versus nil the previous year) but the value of short and long term incentives fell 51 per cent to $1.67 million.
The outcomes for new chief executive Mike Scott, new chief financial officer Anthony Gianotti and new Bunnings managing director Mike Schneider were also reduced by the losses from Bunnings UK and Ireland. However given they were all in new roles in 2018 it is difficult to compare like with like.
Mr Scott, who took the helm in November, saw his cash bonus fall from $900,000 to $500,000, but his total remuneration rose 17 per cent to $6.55 million.
Mr Schneider, who succeeded former Bunnings boss John Gillam – the architect of Bunnnings’ offshore expansion – in 2017, saw his total remuneration rise 193 per cent to $4 million even though none of the financial targets for BUKI were met.
Mr Gillam was not part of the key management team in 2018 and his remuneration was not disclosed.
Outgoing department stores managing director Guy Russo gave up some short term equity based incentives after the $300 million impairment charge at Target and his total remuneration slipped 9.4 per cent to $5.47 million.
Chairman Michael Chaney said 2018 was a year of significant change for Wesfarmers and the group took some difficult, but important decisions to restructure its portfolio in the interests of long term shareholder returns.
In addition to the sale of the loss-making BUKI, Wesfarmers sold the Curragh coal mine and announced the proposed demerger of Coles. After year-end, Wesfarmers sold Kmart Tyre and Auto Service, its 40 per cent interest in the Bengalla coal mine and its indirect interest in Quadrant Energy.
Mr Chaney said the asset sales and demerger would lead to a reduction in the size of the company but leave it with a group of strong businesses with good growth potential and a very strong balance sheet.
“That financial strength does not mean that we feel any urgency to make new acquisitions,” he said. “Apart from the fact that there are many opportunities for growth in our existing businesses, new investments will only occur if we assess them to have the potential to deliver superior returns to our shareholders over the long term.”