Had the Naspers board applied as much creative genius to shareholder value as it appears to have applied to CEO Bob van Dijk’s remuneration package, there’s little doubt that Naspers shareholders would be a considerably happier bunch of people right now.
Van Dijk has just exercised the tranche of Naspers N share options he was awarded when he was appointed CEO in early 2014. He appears to have made a pre-tax profit of R1.1bn on those 832,000 Naspers N share options when, late last month, he exercised and sold all but 156,585 of the stock.
What’s more, last month Van Dijk made a pre-tax profit of R614m on the sale of a chunk of his 832,000 “linked” Prosus N shares received as part of the 2014 award.
The enormously valuable wad of stock awarded in 2014 contained an element of a signing-on bonus, used to tempt Van Dijk away from alternative job opportunities such as, perhaps, CEO of eBay. But though unusually steep, it wasn’t a one-off display of generosity. Every year since, the group’s remuneration committee has heaped enormous wealth on its CEO; generous guaranteed pay plus attractive short-term bonuses were piled on top of the potentially eye-watering long-term incentives.
Counterpoint Value Fund manager Piet Viljoen describes the generosity as “completely outrageous”. Viljoen isn’t averse to rewarding performance and believes there could, in time, be evidence of Van Dijk’s value creation. But, to date, says Viljoen, “he’s created no value for Naspers”. He would prefer to wait until there is evidence of Van Dijk’s value-creation skills before rewarding him so generously.
If you step back and look at this rationally, it makes no sense; at best it’s unethical
— Piet Viljoen
Not that the Naspers share price hasn’t moved under Van Dijk’s watch; it has shot up from just over R800 in early 2014 to a record peak of R3,595.19 in January 2021. However, this movement had nothing to do with Van Dijk, or anyone at Naspers; it was entirely due to the rocket-like takeoff of its China-based investment Tencent. But the surge in the Naspers share price does mean any options awarded to Van Dijk before 2017 have huge potential value.
According to the group’s remuneration policy, share awards must be exercised within five to 10 years from the date of grant. The 832,000 options awarded to Van Dijk in 2014 vested in three tranches from March 2017 to March 2019. Also in terms of the remuneration policy, he could have started to exercise and sell them at any time from 2018 to 2023.
If he had exercised and sold them at any stage between February 2020 and August 2021, he would have netted even more than the R1.1bn pre-tax profit he has just made.
Van Dijk’s 2014 bonanza doesn’t end with just the hugely valuable Naspers N share options. The 832,000 Naspers N share option award was subsequently enriched by 832,000 “linked” Prosus N shares, which, as with all shareholders, Van Dijk received at zero cost. Those share awards were exercised last month; again, Van Dijk sold most of the shares as soon as they were exercised for a pre-tax profit of €35.3m (R614m).
According to a company announcement he held on to only 275,144 Prosus N shares.
Amazingly, that’s not the end of the remuneration committee’s largesse. As an executive director Van Dijk was able to participate in other Naspers group share-based incentive schemes. So, during financial 2015 he picked up a chunk of Flipkart share appreciation rights (SARs), a large block of Naspers Global Ecommerce SARs and some SimilarWeb Limited SARs.
This wasn’t exactly the petty cash dimension of Van Dijk’s remuneration. In 2018 when Flipkart was sold to Walmart, Van Dijk was able to cash out his SARs for R219m.
Protea Capital Management CEO Jean Pierre Verster tells the FM that the notion of using companies like Facebook and Apple as benchmarks for Naspers/Prosus remuneration is perplexing. “Prosus is an investment holding company, so referencing the pay at companies like Apple and Facebook where management is operational, is inappropriate,” Verster tells the FM, adding: “It’s ridiculous when you consider the substance of what is actually under Prosus executives’ control.”
Verster notes the shares recently sold relate only to one year’s awards. “Over the next three years Van Dijk will likely bank considerably more money.” But he cautions that the criticism has to be balanced by consideration that Naspers/Prosus might outperform the market in the next year or so. As it happens, Verster’s not holding out too much hope, noting the group has just received approval for the Billdesk acquisition, which was done at an eye-popping top-of-the-market valuation.
And don’t get Viljoen started on the fact that Van Dijk is selling into a share market overshadowed by the company’s own share buyback programme. “If you step back and look at this rationally, it makes no sense; at best it’s unethical,” Viljoen tells the FM. “The Naspers/Prosus remuneration committee really must take a hard look at the outcome of their policies, it can’t be what they intended.”
In response to queries, Naspers said: “This is a personal decision to manage his portfolio. Bob remains very strongly aligned with shareholders in both businesses. Beyond his ongoing participation in our LTI [long-term incentive] plans, on January 7 2022, Bob bought $10m of Prosus shares.”
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