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Exclusive: Retailer Faces Huge Pay Revolt

(c) Sky News 2012

One of the London stock market's most prominent retail businesses is facing a massive revolt over its executive pay report that could rank among the largest protest votes ever seen in the City of London (LSE: CIN.L - news) .

I have learned that Darty, the former owner of the Comet electrical goods chain, is bracing itself for well over 50% of its shareholders to vote against its remuneration report at its annual meeting in mid-September.

If such a revolt does take place – and senior City sources believe it is inevitable – it would prolong the 'shareholder spring' that gripped company boardrooms earlier this year.

Aviva (LSE: AV.L - news) , the insurer, and WPP Group, the marketing services supplier, were among those which saw executive pay reports defeated by disgruntled investors.

Vince Cable, the Business Secretary, has unveiled plans to introduce binding votes on company pay reports although these will not be in place until next year at the earliest.

Shareholders in Darty, which operates in France, Italy and Spain following the cut-price sale of Comet, have been prompted to protest over a combination of underperformance and poor governance standards at the company.

On Friday morning, Darty disclosed in an embarrassing statement to the stock exchange that it had misled shareholders for several years by indicating that a share award made in 2009 to Thierry Falque-Pierrotin, its chief executive, was subject to stretching performance targets.

In fact, the shares were not dependent upon the company or Mr Falque-Pierrotin meeting any performance conditions, and vested in January this year.

"On joining the company, Mr Falque-Pierrotin forfeited option and stock entitlements linked to his previous employment worth, at that point, at least €775,000.

"The remuneration committee, as part of his recruitment package, agreed at that time to compensate Mr Falque-Pierrotin through a one-off conditional share award, with the only condition to vesting being his continued employment with the Company for three years.

"The 2009 Annual Report and Accounts erroneously stated that a TSR (Munich: 869159 - news) performance condition also applied; this was not the case," the statement said.

One major shareholder in Darty questioned why it had not become aware of the error earlier.

"It is an utter shambles," the investor said.

The mix-up has led all of the major proxy voting agencies, which advise shareholders how to vote at company meetings, to recommend opposition to the remuneration report, I’m told.

In a red-top notice issued by the Association of British Insurers (and which has been leaked to Sky News), the influential investor body expressed its dismay at Darty’s handling of the situation.

"Given that shareholders supported the disclosures which outlined vesting against a TSR (NasdaqCM: TSRI - news) [total shareholder return] performance condition and have not been informed or voted on the award vesting subject to no performance conditions shareholders may have concerns with disclosures and approach taken by the company," the ABI report said.

People close to Darty, which changed its name from Kesa Electricals (Other OTC: KESAF.PK - news) earlier this year, acknowledged that there would be a significant revolt but said it had made substantial boardroom changes in recent months in an effort to improve the company’s performance.

Alan Parker, the former boss of Costa Coffee-owner Whitbread (Other OTC: WTBCF.PK - news) , is due to take on the chairmanship of the company after next month’s AGM.

It's unclear how Knight Vinke and Schroders (Berlin: PYX.BE - news) , which collectively own about 37 per cent of Darty’s shares, plan to vote at the annual meeting, although analysts said it was almost inevitable that they would oppose the pay report. Both investors declined to comment, as did Darty.

Knight Vinke, a leading activist investor (which also today expressed its opposition to the proposed merger of Glencore and Xstrata (Dusseldorf: XTR.DU - news) , the mining groups), has been campaigning for change at Darty for some time, recently agreed to work with the board on devising a new strategy for the company.