Cineworld, the cinema chain that has been severely hit by the pandemic, is facing a shareholder rebellion over a proposed bonus scheme that could award its chief executive up to £65m.
Three top 30 shareholders told the Financial Times they would vote against the proposed pay package at a company meeting on Monday. Big proxy advisers, which issue guidance to investors, have recommended opposing it.
“We are voting against the remuneration because it is just nonsense,” said one large shareholder.
The proposed incentive plan would put Cineworld’s chief executive and deputy chief executive — the brothers Mooky and Israel Greidinger — in line to receive stock-based awards of up to 1.25 per cent of the company’s issued shares if certain targets are hit. The targets start at a share price of £1.30 — the level at which Cineworld was trading last March, shortly before the UK’s first lockdown.
Glass Lewis, the proxy adviser, branded the potential payouts “excessive”, adding that based on the company’s current share capital, the maximum payout would be approximately £65.2m.
One big shareholder likened the proposal to a controversial pay plan at UK housebuilder Persimmon, which faced a backlash three years ago after it tried to award its chief executive a £110m bonus largely linked to a sharp rise in the company’s share price.
He argued that Cineworld was “using a particular low in the share price to line executives’ pockets when other stakeholders are suffering”.
Another top 30 shareholder said they were uncomfortable with the sheer size of the potential award.
Cineworld’s current share price is around 68p, while analysts’ consensus target for the stock is 70p.
If the share price reaches £1.30 within three years, the Greidinger brothers would receive a quarter of the possible share options. They would be awarded 100 per cent if the stock price hits £1.90.
Cineworld entered the Covid crisis heavily indebted as it attempted to pursue a $2.1bn deal to buy the Canadian chain, Cineplex, its second big takeover in two years. In September it posted a $1.6bn pre-tax loss for the first six months of the year, after the hit from the first lockdown.
The postponement of the majority of Hollywood releases in the autumn, including the long-awaited new James Bond film, pushed the company to close its 670 cinemas across the US and UK and seek $750m in emergency funding from lenders. The company has furloughed its UK employees.
Many of the UK’s biggest investors have warned companies that in the wake of the pandemic, executive pay needs to reflect the broader experience of stakeholders, including employees.
In its circular to shareholders, Cineworld argued that it needed to “retain and motivate our highly regarded leadership team through the next phase of the company’s recovery and beyond” and said it had consulted with its major shareholders on the design of the incentive plan.
The company declined to comment on Thursday.
Institutional Shareholder Services, the world’s largest proxy adviser, said: “Given the exposure of the cinema industry to external factors outside of the executives’ control, this is not considered an appropriate performance incentive, particularly in view of the level of reward on offer.”
Ivis, the voting service of the Investment Association, issued a red-top alert on Cineworld’s remuneration policy, its highest level of warning. Pirc, another proxy adviser, also recommended shareholders vote against the remuneration policy and long-term incentive plan.
The Cineworld business grew out of the Greidinger family’s first purchase of a cinema in 1930 and Israel Theatres, the family trust, is its biggest shareholder. It owns around 20 per cent of the business having reduced its stake from 28 per cent at the beginning of the pandemic.