Ruslan Kogan, CEO of Kogan.com, and his co-founder and CFO David Shafer have scored $75 million windfall after shareholders voted narrowly in favour of granting the duo 6 million share options at a fraction of the current share price.
At today’s AGM, the deal, struck in May at an options share price of $5.29, was approved by a 56% majority.
But Kogan shareholders are clearly not happy with executive pay at the online retailer, delivering a “first strike” blow against the remuneration report, with nearly 44% of the vote opposed, well above the 25% threshold.
Proxy advisers had recommended against the report as well as the share allocation to Kogan and Shafer.
Under the ‘two strikes’ rule, shareholders must approve the remuneration report by 75%. With Kogan.com shareholders expressing a high level of displeasure, the company’s 2021 remuneration report must explain whether their concerns have been addressed and if a ‘second strike’ vote happens at the 2021 AGM, it would trigger a spill meeting of the board.
The share options deal only required a majority vote.
Shareholder activist Stephen Mayne stood for election as a non-executive director but did not have board endorsement. He received a 14% yes vote.
Kogan (ASX: KGN) shares fell to under $18 in the wake of the AGM to close the day down more than 4.5% to $17.50.
But the lift in the share price over the last six months leaves the duo with a Kogan and Shafer sharing a windfall of around $75 million on the strike price of $5.29. Kogan, who owns around 15% of his eponymous business, will receive 3.6 million options, and Shafer, with a 5% stake, 2.4 million.
The deal is a sweetener to keep them both in the company until at least August 2023. The options are now worth more than $100 million in total.
The exercise price of $5.29 was calculated on the volume-weighted average price between February and April, which spans the period when the market tanked as Covid-19 hit and Australian states when into a range of lockdowns.
Kogan.com Chair Greg Ridder’s told the AGM that “every board-endorsed resolution was carried with a significant margin” but noted that proxy advisors had opposed some resolutions.
“We have some work to do in this regard to improve our engagement with these parties especially as we set sail for the ASX200. There was an inordinate amount of noise and hyperbole about the retention options but ultimately our supportive investors looked through that and have recognised the extraordinary value these executives deliver,” he said.
“The sadness of this option story has been its focus on a perceived value outcome for our business leaders and not recognition that any future payout directly reflects the value created for shareholders.
“For Ruslan and David, together, to receive $100 million they must have more than quadrupled the share price and our investors should be dancing in the streets. I would rather recognise this amazing pioneering low cost and ruthlessly efficient eCommerce company that has grown to serve one in eight adult Australians. It hasn’t happened by chance.”
Ridder added that it was: “a great pity that so much attention has been focussed on the in-the-money value of the options instead of what caused it — phenomenal increase in return to all shareholders”.
In his address to shareholders today, Ruslan Kogan said the company had “thrived through adversity”.
“We delivered strong growth in the business in the midst of an extremely turbulent and challenging period for the world, the country and the Company,” he said.
“We have built a diversified and resilient business over many years, which has enabled us to help Australians in their time of need.”