Last year we covered the saga of Sports Direct’s 2015 Share Scheme through the vote to approve the scheme and the subsequent votes at the 2014 AGM.  This story has refused to go away and resurfaced this week at the company’s 2015 Annual General Meeting.

There has been much press comment on the outcomes and reasons why shareholders are unhappy, but there are additional points worthy of note and which will play out again at next year’s AGM.

At last year’s AGM over a third of shareholder votes cast were against the company’s Directors’ Remuneration Policy if you exclude Mike Ashley’s shares from the calculation.  However, the 2015 Directors’ Remuneration Report simply records the previous year’s vote as only 12.5% votes against (i.e. taking Mike Ashley’s shares into account).  This is fair enough on one level – Mike Ashley is perfectly entitled to vote on the policy because he takes no remuneration from the company.  However, the legislation that brought in binding votes on remuneration policy states that if there was “a significant percentage of votes against” the remuneration policy in the prior year then the next year’s Directors’ Remuneration Report must contain a summary of the reasons behind that dissenting vote and any actions taken by the directors in response.  There is no sign of this information in the 2015 report so clearly Sports Direct’s directors do not consider that the votes against in 2014 were significant.  While it would be difficult to accuse Sports Direct of non-compliance with the legislation (because “significant” is not defined), this was unlikely to endear the company to its independent shareholders.

So, turning now to the 2015 AGM, the vote against the Directors’ Remuneration Policy has gone up significantly, from 12.5% to 18.5%.  More important than the overall percentage is the result if you exclude Mike Ashley’s shares – slightly more than half of independent shareholders voted against the resolution.  The lesson appears to be that if you ignore your shareholders they will only shout louder in order to be heard.  Given that the overall percentage voting against is still below the 20% which has been mooted in the GC100/Investor Group guidance as a threshold for deciding if a negative vote is “significant”, Sports Direct may yet try to duck this one again when the 2016 Directors’ Remuneration Report is published.  However, that would a brave move given the sentiments that have been expressed by shareholders to date and the detail of the GC100/Investor Group guidance.  Of course, even if the company accepts that this year’s percentage vote against was “significant”, there is nothing that actually obliges it to engage with shareholders.  It remains to be seen if the embarrassment factor that would drive most quoted companies to do so will apply to Sports Direct.

If the independent shareholders continue to be dissatisfied, the one area in which they can’t simply be ignored is the re-election of the non-executive directors.  This is due to a recent addition to the Listing Rules that applies to companies, such as Sports Direct, that have a majority shareholder.  This year the vote against the re-election of non-executive directors did very noticeably increase but was still well below the levels that would cause a problem, even leaving Mike Ashley’s votes out of account.  We will watch this one to see how it develops next year.

All this has somewhat overshadowed the fate of the 2015 Share Scheme itself.  This includes extremely demanding performance conditions that were originally intended to justify the size of the reward when it was still proposed that Mike Ashley would participate in the scheme.  It is no great surprise that the Remuneration Committee has had to come back to shareholders in order to relax those conditions.  Most independent shareholders backed this resolution, no doubt recognising that it wouldn’t be constructive to let the whole scheme fall at the first hurdle.  It will be interesting to see if the Remuneration Committee has to repeat this process in future years in order to keep this scheme alive.

As is ever the way with Sports Direct, watch this space – more controversy is bound to follow…