ABI urges investors to reject Sports Direct bonus scheme

The Association of British Insurers is publicly calling on investors to reject the latest bonus scheme proposed by Sports Direct, putting the sports retailer on a collision course with the City.

The scheme would allow Mike Ashley, the group's founder, majority shareholder and executive deputy chairman, and "all eligible" employees to split £200m of shares.

It was announced after shareholders opposed an earlier bonus plan that would have awarded shares worth almost £70m to Mr Ashley, leading Sports Direct to cancel the meeting called to approve it.

The ABI dismissed the argument that Mr Ashley - a billionaire who receives no salary from the group - needed large amounts of money as an incentive, saying that he should be paid appropriately for his role as a manager, regardless of his personal wealth.

It also criticised the lack of information about how the remuneration committee would split the £200m of shares between Mr Ashley and other employees, pointing out that this degree of freedom would allow the board, in effect, to enact the bonus plan rejected by shareholders.

Shareholders who have engaged with Sports Direct through the ABI account for almost one-fifth of the free float, and some other investors, are said to share their concerns.

For the plan to pay out in its current form, Sports Direct must more than double its earnings before interest, tax, depreciation and amortisation - forecast at about £330m for this year - to £750m in 2019. Supporters say this shows the scheme is both stretching and long-term, thus answering two typical shareholder criticisms of executive bonus arrangements.

But the ABI also sees the plan as symptomatic of broader problems in Sports Direct's relationship with its investors since it listed in 2007, even though spectacular share-price gains have propelled it into the blue-chip FTSE 100 index.

"There are real, underlying concerns at the effectiveness and ability of the non-executives to hold this particular management team to account," said Robert Hingley, head of investment affairs at the ABI.

It also expressed concern that Sports Direct had published the new bonus scheme without further shareholder discussion, despite a meeting in May with Keith Hellawell, Sports Direct's chairman, and Simon Bentley, the company's senior independent director, at which - ABI participants said - they committed themselves to consultation.

This third attempt in two years to award Mr Ashley a bonus is set to be decided at a general meeting in early July, and needs a simple majority of those voting to be approved.

Mr Ashley - who has a 58 per cent stake - and other employees who would be eligible do not vote.

Sports Direct declined to comment.

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