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The association said the board was at fault for allowing the situation to arise, and to provide a signing on bonus of about $7m with no performance component was "remarkable".
"To do so for a new CEO who has no great experience in A2 Milk's field of business is unprecedented. Adding to questions around the board's judgement is the fact that the new CEO base rate is far higher than that of Mr Babbidge who was responsible for driving the massive growth that [A2 Milk] has enjoyed to date," the association said.
A2 proposes big hike in directors' fees
GERARD HUTCHING15:24, Nov 19 2018
A2 Milk directors will receive a hefty fee hike if a proposed resolution is passed at the company's annual meeting on Tuesday.
Chairman David Hearn's fee will rise by 37.5 per cent to $165,000, as will the three independent non-executive directors, who will be paid a similar amount.
Deputy chairwoman Julia Hoare is set to receive $210,000, up 27.3 per cent. Her fee is higher than Hearn's because he has an executive role in relation to the company in Europe and the United Kingdom.
Frequent critic the Shareholders Association has given a qualified blessing to the rises, acknowledging A2 has grown and performed well over the past few years, and shareholders have benefited.
"In our view, the proposed fees are towards the top of the scale and unless there are extenuating circumstances, we would not expect the board to come back to shareholders seeking a further increase for at least two years."
However in a preview report prior to the annual meeting, it has blasted chief executive Jayne Hrdlicka for pocketing $4.36 million after cashing in shares, only two months into the job. A2 Milk said at the time she did so to meet tax obligations and commitments made before she joined the company.
Hrdlicka's package is in excess of $9m for her first year, made up of a base salary of $1.61m, a signing on bonus of $630,000 and 599,254 share options she can exercise between August 2018 and August 2019.
Having now sold the bulk of her shares, she has a balance of 242,022 that she can dispose of up to August next year and if sold at the current share price these will realise $2.63m.
"In our view, Ms Hrdlicka has impacted on confidence in the company by her (completely legal) actions in selling, and this must raise questions about her judgement. If the situation was unavoidable, it would surely have been better for A2 Milk to disclose the need to sell at the time when she was employed, rather than after the event."
The association said the board was at fault for allowing the situation to arise, and to provide a signing on bonus of about $7m with no performance component was "remarkable".
"To do so for a new CEO who has no great experience in A2 Milk's field of business is unprecedented. Adding to questions around the board's judgement is the fact that the new CEO base rate is far higher than that of Mr Babbidge who was responsible for driving the massive growth that [A2 Milk] has enjoyed to date," the association said.
It opposed a resolution that Hrdlicka be appointed managing director on the grounds there should be a clear separation of the governance and management roles and to avoid the conflicts of interest that will arise from a dual role. It said the chief executive should report to the board and not be a "first among equals".
An A2 spokesman acknowledged Hrdlicka's share sale had not resonated well with shareholders.
"We paid what we paid to get a chief executive of the calibre we have today. Jayne was leaving a sizeable equity position from her previous role and the company needed to compensate her for some of what she was leaving behind.
"It is the board's view that what it was seeking to do was align Jayne's interest to the company as early as possible."
He said the previous remuneration pool was set two years ago when the share price was about $2 and the revenue was $350m.
Since then it had become an ASX100 and NZX10 company with revenue approaching $1 billion and market capitalisation exceeding $7b. A benchmarking review it had commissioned convinced the board the new remuneration pool was a fair one.
It was a multinational business with "enormous" potential, but also with enormous demands and significant risks to navigate. As well, it was sizing up the possibility of an additional directorship.
Meanwhile Swiss banking giant UBS has splashed out $379m on A2 shares to give it a 5.07 per cent holding in the company.
In September, United States investment company Blackrock bought a 5.21 per cent stake in A2.
The dairy marketer's share price has fallen from a high of $14.10 to $10.31 on Monday, although as recently as 2015 the shares could be picked up for 50 cents each.
While most cows carry both A1 and A2 proteins, A2 milk comes from herds that that produce milk naturally free of the A1 protein.
Production of A1 or A2 type milk depends on a cow's genetics, and research indicates A2 may be healthier for people who are susceptible to diabetes, heart disease, autism, schizophrenia and Crohn's disease.