PIC takes on JD Group over share options

JD Group is in trouble again with SA's largest shareholder, the Public Investment Corporation (PIC), after directors at the furniture retailer awarded themselves share options discounted from the market price and at stock levels not seen in five years.

Deon Botha, corporate governance specialist at the PIC, said yesterday he had immediately tracked down David Sussman, executive chairman of JD Group, who was travelling overseas on the day the share options were announced.

“We agreed that as soon as he gets back we will discuss this matter further,” Botha said. He could not say much more ahead of the meeting

The options were awarded after JD Group said in January that four-month sales were 4,8% lower due to bad debts.

Operating margins were at five-year lows in its last annual report and attributable profit had fallen for two consecutive years. JD Group's share price has slid more than 45% since the beginning of 2006.

On Wednesday, 13 directors at the group were awarded 725000 share options at a 10% discount to market value. The share closed at R41,35 on Monday but directors got options at R37,21.

Gerald Völkel, chief financial officer, said a discounted share option was written into the share incentive scheme and shareholders had previously voted in favour of the scheme.

“Staff has been making noises about moving on and this is a good retention mechanism that protects the long-term interests of the group,” Völkel said.

Rob Forsyth, head of industrials at Investec Asset Management, the third largest shareholder in JD Group, said as a policy, Investec preferred options to be issued at the spot price.

JD Group has been under fire recently for poor results and a lack of empowerment. It said at its annual meeting last month it wanted to fall in line with PIC requirements, but this has yet to happen.

“We do not hold any of these shares but this is not the route for David Sussman to improve relations with shareholders,” David Couldridge, senior governance analyst at Frater Asset Management, said yesterday.

Last year's annual report indicated Sussman had 1,185-million options which, with the 200000 he was offered this week, would make him a profit of R17,65m if priced at JD Group's closing price of R43 a share on Wednesday.

The furniture retailer has admitted it does not follow all of the recommendations of the second King report. Ironically, two of the members of JD Group's remuneration committee are Mervyn King and Len Konar, both of whom helped to draft the King codes.

JD Group's remuneration policy states the company wants to ensure that pay packages are “related to performance, are suitably competitive and give due regard to the interests of the shareholders and the financial and commercial health of the group”.

However, no performance targets were cited as the reason for granting the share options. Furthermore, the options have to be expensed through JD Group's income statement, according to new tax laws. This is again seen by many as being prejudicial towards shareholders because they will bear the cost.

Source: Business Day

Published courtesy of