CINCINNATI - Activist investor Nelson Peltz zeroed in the executive pay plans at Procter & Gamble Co. in a new letter to investors Monday.
“Senior executives are being paid their full bonuses even if they continue to lose market share,” said the Sept. 18 letter from Peltz’s Trian Fund Management L.P. “The board and senior management have accepted mediocrity.”
P&G has yet to respond to the letter, but CEO David Taylor told WCPO last month that the company is growing market share around the world.
“Two years ago, we had three of our top 20 markets growing share,” he said. “Today, we have half of them growing share, so you’re seeing sequential progress. P&G people are doing what it takes to better serve consumers.”
Peltz is advocating another major restructuring for P&G, one that would organize the company into three operating units, each with a global president incentivized to stoke faster sales growth while cutting expenses. P&G has argued its growth plans are more sustainable. It spent the last five years on a massive restructuring, selling off 100 brands while cutting $10 billion in expenses and more than 30,000 employees.
“My aspiration for the company is we lead,” CEO David Taylor told WCPO last month. “So, we want to grow faster than the category and we want innovation to grow the categories we’re in.”
Taylor told Wall Street investors last November that organic sales – which excludes acquisitions, divestitures and other unusual events – is growing at 3 to 3.5 percent in the markets where P&G now competes. But P&G’s board revealed in August that Taylor could receive 100 percent of a long-term stock incentive worth $6 million if P&G achieves 2.8 percent organic sales growth in the next three years. That's faster than the 2 percent growth achieved by P&G in the 12 months ending June 30.
Bernstein Research analyst Ali Dibadj said P&G's compensation goals could be a factor for shareholders frustrated by the company's slow growth in recent years.
P&G's compensation targets "seem very low for what's supposed to be a turn-around company," Dibadj said.
Peltz cites organic sales and earnings-per-share goals as evidence that P&G's board is rewarding mediocrity. But the Performance Stock Plan to which he refers is more complicated than that. In addition to organic sales, three other goals must be reached for executives to receive 100 percent of their potential incentives. Two of those goals are measures of profitability. The other involves positive cash flow, which helps P&G pay dividends, buy back stock and reduce debt.
P&G performance goals
"The current earnings per share growth target through 2019 is only 6 percent, which would put P&G in the bottom quartile of its peers," Trian said in the Sept. 18 letter. "If elected to the P&G Board, Nelson Peltz will push to ensure performance targets incentivize senior management to strive for excellence and grow the business faster than competitors."
Trian also alleged that P&G will spend more than $100 million to defeat its attempt to win a board seat. That's nearly triple the $35 million P&G has previously estimated for the contest. By the time it ends at P&G's annual meeting Oct. 10, it is expected to be the most costly proxy fight ever.
