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Tussle at Kogan (ASX:KGN) over executive compensations

A corporate tussle is brewing at Kogan.com Ltd (ASX: KGN) over proposed share options for senior executives. Let’s take a look.
The post Tussle at Kogan (ASX:KGN) over executive compensations appeared first on Motley Fool Australia. –

A couple young arguing against a yellow backdrop, indicating a tussle over business decision

A corporate tussle is brewing at e-commerce retailer Kogan.com Ltd (ASX: KGN) over proposed share options to be granted to its senior executives. The Kogan share price lifted to an intraday high of $19.24 but has since retreated to $18.89, down 0.74% at the time of writing.

What’s being disputed

The Kogan board is proposing to grant 3.6 million share options to chief executive Ruslan Kogan, and 2.4 million share options to his chief financial officer, David Shafer. The board says the share options are meant to be an incentive for the two executives to stay at the company for the next three years. Options are a type of derivatives, giving holders the right but not the obligation to buy the underlying shares at a pre-determined ‘exercise price’. 

But Proxy advisers CGI Glass Lewis, acting on behalf of institutional investors in the matters of executive compensation, has said that these options grants are “overly generous”, and encouraged shareholders to vote down the proposal. The advisers also threatened to vote against the re-election of specific directors in future if the company goes ahead with granting the options. 

The main contention is the exercise price of the options, which was set at $5.29 and perceived to be too low, without strict performance targets attached. Kogan said this exercise price was calculated based on the three-month weighted average price of Kogan shares between 1 February and 30 April, when the market was at its lowest levels due to the coronavirus-induced panic. With the Kogan share price currently aroun $19, these share options are practically already in-the-money, giving both executives a windfall of more than $100 million in paper profits.

What the chairman said

Kogan chairman Greg Ridder defended the options grant proposal, saying that Mr Kogan and Mr Shafer “more than deserved it”:

I want to know that Ruslan is there to drive the hardest driving performance, and he is the smartest guy in the room, he is there to drive that value for all of us. We are making sure there are big incentives for a big outcome.

These guys have been working for close to nothing in the four years they have been with the company. In Ruslan’s cohort of comparable companies that the proxy advisers drew in this, he was the lowest-paid executive among 16 entities and yet was the second highest performing of all those entities.

How has the Kogan share price performed in 2020

Kogan, like other technology-based retailers, has had a fantastic year after the pandemic shifted people’s buying habits to online. The Kogan share price started the year at $7.47 before slumping to $3.79 at the height of market panic in March. It has bounced back strongly to trade at $18.89 today. The company commands a market cap of $2 billion.

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Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Tussle at Kogan (ASX:KGN) over executive compensations appeared first on Motley Fool Australia.

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