Leading investors in Sports Direct will vote against the re-election of the chairman and other board members at September's annual general meeting in protest at the multimillion-pound bonus scheme pushed through this week for the retailer's founder, Mike Ashley.
Shareholders unhappy about the deal are planning coordinated action through the Association of British Insurers' (ABI) investment committee and the National Association of Pension Funds (NAPF).
Sports Direct shareholders voted on Wednesday in favour of the scheme, which will give pounds 180m of shares to 3,000 permanent staff, including Ashley, if profits double by 2019. The plan was Sports Direct's fourth attempt to line up a big payout for its billionaire founder, who owns 58% of the company and is deputy chairman. Sports Direct has not revealed how much of the payout will go to Ashley, who did not use his vote.
The payout motion was passed despite strong opposition from shareholder groups including the ABI. But big shareholders said Wednesday's vote was not a victory and that instead it left Keith Hellawell, group chairman, Dave Singleton, the remuneration committee chairman, and other directors exposed to a revolt at the annual meeting.
A top 20 shareholder of Sports Direct who intends to vote against Hellawell and Singleton said: "The overriding impression created by this episode is of an incredibly weak board. At some stage, Mike Ashley is going to want other shareholders to support him on something, and if relations between him and other shareholders are so poor he may not get that support. This is now a public company and that requires different standards."
Sports Direct declined to comment.
The company enraged investors after it floated in 2007 because it was not open about its trading, but improved disclosure and booming profits helped to win over critics. Another leading Sports Direct shareholder said they were pleased with the company's business performance, but that they intended to vote against the directors even though Ashley's majority stake made victory unlikely.
"I don't think it [the AGM protest] is anything to do with pay now because we have lost that. It was the process leading up to the vote which shone a light on how the board works. We don't feel we can just sit back and say that is the way it is at this company. We have to express our view to protect ourselves but I don't think Mike Ashley will listen. If he doesn't want those directors off the board it will be one we can't win."
Deborah Gilshan, corporate governance counsel at Railpen, which oversees pounds 20bn of railway pension funds and is a Sports Direct investor, said: "We will be voting against some of the individual directors because they haven't acted in the best interests of all shareholders. This wasn't just about Sports Direct specifically but about the message it sends to the wider market. It was about the protection of minority shareholders and the integrity of the London market."
Sports Direct said the pay plan toughened up the terms and included Ashley in a scheme for all permanent employees. But pension funds opposed to the deal are asking which fund managers switched votes to support Ashley's latest attempt to secure a big payday.
Will Pomroy, NAPF's stewardship and governance lead, said: "Our members will expect that this is not the end of the matter and attention will now turn to the wider issue of the quality of governance arrangements at Sports Direct."