Restaurant Brands shareholders brandish stick at executive carrot

By CHRIS DANIELS

What is the better way of paying a chief executive - cash or shares?

That was the hot topic at yesterday's Restaurant Brands annual shareholders' meeting.

Directors of the company, which owns the KFC, Pizza Hut and Starbucks brands in New Zealand, gained approval for a new plan to reward chief executive Jim Collier.

Bruce Sheppard, chairman of the New Zealand Shareholders' Association, took up the cudgels on behalf of shareholders.

He asked directors for details of the scheme, which will give Collier 1.5 million shares at $2.09 each - about 1.6 per cent of the firm - if he meets performance standards.

These include achieving a share price of $3.02 in three years.



The new shares will be bought now with nearly $3 million the company will lend Collier.

They will sit in trust for the next three years and, while not earning dividends, may carry voting rights.

If Collier meets the performance targets, he will get ownership of the shares and will then have 13 months to pay back the loan.

Sheppard said this was clearly inequitable as Collier would have paid no money to buy the shares, and 1.5 million shares would make Collier a substantial shareholder.

"It is a significant stake and he doesn't have any money at risk, so why should the stock be voting?" he asked chairman Bill Falconer.

Falconer said the scheme was intended to give Collier "a feeling of ownership in the company".

The directors' resolution to set up the plan was approved, but Falconer, in response to Sheppard's queries, asked shareholders for their views on Collier voting the shares, which the directors would "take on board" when putting the plan together.

A show of hands indicated the majority did not think Collier should be able to use the shares to vote on company resolutions until he was actually given them.

Another Restaurant Brands shareholder, Graeme Bulling, said Collier's high salary, equating to $250 an hour, should be quite enough to generate a "sense of ownership" in the company.

"Let him use his own money to buy shares. Let him stand to lose something," said Bulling. "In all these plans he loses nothing - let him use his own money."

Restaurant Brands' annual report gives Collier's director's remuneration as $540,227 for the 15 months to February 28. In January, he bought 15,000 shares, at $1.96 each, taking his holding to 69,166 shares.

He holds 340,909 options exercisable until July 1, 2007, at $2.42 a share.

In his speech to shareholders, Collier said the company had had some early success in its campaign to "revitalise" the KFC brand. It was his mission to make KFC "sexy" with consumers, and part of this was the recent addition of new products.

He said Starbucks Coffee's total sales had increased 60 per cent, although "same store" sales had dropped 1.3 per cent because of the "cannibalisation' of existing stores by newly opened outlets.

On the Pizza Hut front, Collier said there was potential for Restaurant Brands to face stiff competition.

"We do, however, face challenges. The barriers to entry into home delivery pizza are relatively low and there are international competitors who have yet to launch into New Zealand."

Pizza Hut was well placed to take on any rivals, he said.

The 51 Pizza Hut stores recently bought in Victoria, Australia, were being "turned around" and no more acquisitions would be made until management was satisfied Pizza Hut was running well.

Shares in Restaurant Brands hit a four-year high in January after the company reported a 27 per cent rise in annual profit and said it was looking at new business opportunities.

The net profit, after tax and abnormals, for the November year was $12.2 million, compared with $9.8 million last year.

Total sales were $258.8 million, up 12.7 per cent.

The company intends to pay an 8c a share dividend on May 29, taking its dividend payout for the 15 months to 12.5c.

This equals the 10c it paid out in the previous 12 months. Restaurant Brands shares closed up 2c at $2.14.