Danish pension fund Sampension's Chief Executive, Hasse Jørgensen, was caught up in a minor media storm when in February he was quoted saying that Sampension's 10 percent ownership share in KMD, a large Danish it-services company which is gearing up for an IPO, was too insignificant for him to comment on how much money KMD's management could earn from an incentive scheme.
But there was a good reason for the statement, says Jørgensen in an interview with FW Asset Management.
According to the CEO, the reason that Sampension originally declined to comment was because Sampension had invested in the US private equity fund Advent International, which subsequently offered Sampension a co-investment in KMD.
"Advent is responsible for the comprehensive due diligence, where the incentive scheme is but one of many details," says Jørgensen.
Nets all over again?
Advent International and Bain Capital were also capital funds which, together with Denmark's largest pension fund, ATP, helped to push the Danish payment services provider Nets onto the stock exchange.
In connection with the IPO, it was disclosed that Nets' management had an incentive scheme, which endowed CEO Bo Nilsson and about 70 other Nets executives with a total 2 billion DKK, or about 270 million EUR.
When Nets was listed September 23, 2016, Nilsson according to media reports had a total package worth some 675 million DKK, of which he sold Nets shares for 179 million DKK the day the shares first traded.
The large incentive scheme has been the subject of much attention, prompting ATP's new CEO Christian Hyldahl to respond. ATP owned 5 percent of Nets before the IPO.
"This is one of the things, that I have had the opportunity to discuss a little internally. I have difficulty imagining that henceforth, in similar situations, if we have the opportunity to affect things, that we will not go in and ensure that there is a cap on these types of schemes," said Hydahl to FinansWatch in January.
Lucrative prospects for KMD executives
According to Danish business news service Finans.dk, KMD's CEO Eva Berneke and a group of executives might well be able to split a three-digit million kroner figure, if the two capital funds manage to secure a listing of KMD.
However the critical question is how much the KMD executives paid for their shares, and hence the return they'll be likely to see. That is dependent on the gearings factor, when neither the capital funds nor KMD wished to disclose to Finans.
Originally, the expectation was that KMD would aim for an initial public offering this year, but it was postponed after KMD experienced delays and problems with a number of major customers, most recently ATP, which last week opted to fire KMD from the development of a new payment system for public and disability pensions.
Exclusively three-digit bonuses
Sampension has a clear stance on incentive schemes in listed companies, which is published on the pension fund's website, says Jørgensen to FWAM.
"We have a stance on incentive schemes. Summed up, incentive schemes must be reasonable, and the proportions of how much you can end up with in a happy scenarie must be resonable. This excludes three-digit million kroner amounts to individuals," says Jørgensen.
"At the same time, an incentive scheme must be revolving and thus run over a long period, rather than across a pivotal event such as an IPO, for example, where you can take the money and run," he continues.
Finally, Sampension believes that the management's incentive structure should resemble that of shareholders.
"So if the stock price falls, those with an incentive scheme will also experience a loss. It should not only have an upside," says Jørgensen.
But how does Sampension view Nets' incentive scheme?
"That is a very hypothetical question. We were not part of the Nets investment. The end result, as I have seen it referred to, seems extreme," says Jørgensen.
Now you have invested in KMD as a co-investment. But how does KMD's incentive scheme fit with Sampension's standards?
"Incentive schemes at KMD are okay in terms of our own framework. We have certainly looked at it a second time after the debate emerged, but it is ok in terms of our conditions," Jørgensen says.
Part of the story is also that KMD moved its employee pension scheme, covering some 600 employees, to Sampension in 2015. But according to Jørgensen, this has not been a factor.
"We potentially saw a dilemma there, that we needed to balance and handle properly and responsibly. But these dilemmas arise in many aspects of life, and in many financial institutions," he says.
"But we will not give KMD a better or worse offer, because we own 10 percent of KMD, and we haven't and shouldn't influenced their decision making process in relation to their decision on pension suppliers," he stresses.
He compares it with a financial group, which can have a company as a customer in for example, a bank or pension fund, and also have that company as a supplier.
"We cannot start mixing up our investment decisions with business decisions. Nor will we. And if we did, we couldn't arrive at the investment results that we do," says Sampension's Hasse Jørgensen.