Treasury Wine Estates has received a first strike on its renumeration report after one of the biggest shareholder rebellions in years over management salary.
Around 47 per cent of votes were cast against TWE's renumeration plan after three proxy advisors advised against it, according to discussion at Treasury Wine Estates' annual general meeting in Melbourne on Monday.
The advisors disagreed with the board's decision to allow the long-term incentives of three senior managers - chief executive Tim Ford, chief financial officer Matt Young and chief strategy officer Stuart Boxer - to vest even though TWE hadn't hit a financial target related to return on capital.
Chairman Paul Rayner told shareholders the board strongly thought it was the right decision to exercise discretion because the managers had no control over China's March 2021 decision to impose punishing tariffs on Australian wine,.
The vote isn't binding and has no immediate effect on the company, but if TWE's renumeration report next year also fails to get a 75 per cent majority that would trigger an embarrassing "board spill" in which every director stands for re-election.
However - unusually among listed companies - TWE only elects its directors for one year anyway, so the practical impact would be limited.
The incentives in question are understood to be worth about $2.5 million for Mr Ford and around $1 million for the other two executives - between 150 and 175 per cent of their fixed pay.
Shareholder activist Stephen Mayne told the board that he understood the wine tariffs were beyond the control of management, whom he said did a good job responding quickly to the company crisis, but he worried about setting a precedent.
"The next time there's a black swan event like COVID, or Ukraine war, or a hurricane for an insurer, the board could say the same thing, couldn't control this, etc," Mr Mayne said.
Mr Rayner responded that board didn't adjust its incentive plan to account for either COVID-19 or the wildfires despite their dramatic effect on Treasury Wine Estates.
"This was a one-off massive effect," he said of the China tariffs.
"I can't think of a similar situation for other companies, where 35 per cent of your profit overnight is gone. We were able to able to reallocate some product to other parts of Asia, but it was a dramatic effect.
"We didn't know it was going to happen when the objectives were set, so we think it was right."
Mr Rayner said TWE welcomed the warming ties between Australia and China over the past year and had a clear plan in place should China re-open its market to its Australian-made wines.
That includes a provision in current incentive plans stating that management won't receive a windfall if those tariffs are lifted, he said.
"So I think we're being even-handed."
In the meantime TWE has become more diverse, multi-source country of origin business, Mr Rayner said.
"We're now supplying wine into China from France, from America, from China itself, from Chile and South America," he said.
Mr Rayner said TWE's first-ever China-produced Penfolds Bin wine had been met with critical acclaim during the financial year.
The wine group also reaffirmed guidance at its annual general meeting on Monday, the final AGM for Mr Rayner, who is retiring.
