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NZSA to vote against Xero's proposed $800k increase in directors' fees

Monday 12th August 2019

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The New Zealand Shareholders’ Association says it will vote the Xero proxies it holds against the resolution to increase maximum directors’ fees by $800,000 to $2.2 million.

That’s because the accounting software company hasn’t provided an independent report to justify the increase and because the notice of meeting didn’t include the amounts payable to individual directors.

“We are concerned on both points as regards the governance principles of disclosure and transparency,” NZSA says in its advice to members on how it will vote any proxies it receives.

“This prevents shareholders from being able to make an informed decision.”

NZSA chief executive Michael Midgley says his organisation isn’t singling Xero out and that it has been encouraging listed companies to consult with it before putting up such resolutions.

“They want an awful lot of money and we don’t know how they arrived at that amount,” Midgley says.

“It might be ASX-listed but it frequently says that it’s a New Zealand company. We think they should display the level of transparency of disclosure that has been hard won for New Zealand shareholders.”

Xero delisted from NZX in January last year to consolidate trading on ASX but its head office remains in Wellington.

The retail shareholder advocacy organisation says it engaged directly with Xero which provided details of individual remuneration intended to apply from Sept. 1 if shareholders approve the resolution at the annual meeting this Thursday.

“The company has not provided us with any information from the consultants’ report so we have no details of the comparator group or the basis of comparison,” NZSA says.

“Whilst it may not be common practice to disclose such information in either the Australian or US markets, NZSA believes that shareholders, the owners of the company, have a fundamental right to all information concerning payments to those who steward the company on their behalf,” it says.

“While the rates proposed might be able to be justified, NZSA is not able to form an opinion on that in the absence of full disclosure and transparency,” so it has “no option but to vote undirected proxies against the resolution.”

Xero included several pages of explanatory notes in the notice of meeting, including that the last time it asked shareholders to approve an increase in directors’ fees was in 2017 and that the company’s policy is to review director remuneration every two years.

“The proposed new remuneration cap reflects the significant growth in the size, value, complexity and risks of Xero’s business and the resulting increase in director workloads and responsibilities since the current remuneration cap was approved by shareholders,” Xero says.

Xero shares have nearly tripled from A$23.70 on the day of the 2017 AGM to today when they are trading at A$61.40, up 0.5 percent from Friday.

NZSA acknowledges the company’s performance.

“Xero needs no introduction, having established its presence on the NZX before moving to the ASX. The company had another solid year with subscribers at 1.8 million, up 432,00, or 32 percent, operating revenue at $552.8 million, up 36 percent and gross margin at 84 percent up 2 percent,” NZSA’s commentary says.

“For the first time, the company was free cash flow positive at $6.4 million compared to negative $28.5 million in FY18.”


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