Alliance Trust and Deloitte admit £100,000 bonus error

Alliance Trust, the £2.8 billion Dundee-based investment trust, has admitted to those gathered at its annual general meeting that it overpaid former chief executive Katherine Garrett-Cox and former finance director Alan Trotter to the tune of £100,000 –an error it also admitted was only noticed by an eagle-eyed shareholder.

The trust has set up an independent inquiry into why share payments to its two former executives were set too high and warned auditors Deloitte over the mistake on bonus payments, with long-term incentive plans for the duo thought to be overstated by 10 per cent.

The error saw the remuneration of the two executives incorrectly stated in the annual report.

However, neither is thought to have been paid the incorrect sum.

Chairman of Alliance Trust, Lord Smith of Kelvin, told shareholders it was an investor who spotted the error, rather than Deloitte or anyone at Alliance Trust.

At the meeting held in the City of Discovery, shareholders questioned whether Deloitte was doing its job properly, with a similar issue having occurred three years ago.

Speaking after the meeting, Lord Smith said: “It is not life-threatening to the company, but it shouldn’t happen. The auditors know that three strikes and they are out. Absolutely, it is being dealt with.

“To think there is something of an overpayment of £100,000 is not something that investors want to hear. We take it very seriously.”

Addressing the gathering. Lord Smith said that the 2013 long-term incentive plan had paid out 32.5 per cent of the maximum, based on the trust’s performance, but “on investigation we agreed the vesting should be lower at 27 per cent….the rewards to participants were adjusted downwards before any shares were sold”. It meant the total rewards for Ms Garrett-Cox and former finance director Alan Trotter for 2015 had been “slightly overstated”.

But minutes later shareholder Douglas Wood said: “I understand the downward adjustment to the two executive directors was over £100,000, a little more significant than we were led to understand. A few years ago there was an error in bonus calculations which led to senior managers having to repay overpayments, this isn’t a good situation, it raises the risk of reputational damage.” Mr Wood went on: “The auditors are not picking up the errors.”

Asked by Lord Smith to comment, Calum Thomson of Deloitte said: “We tested bonuses on a sample basis, unfortunately they didn’t pick up the errors.”

Mr Wood responded: “I have been told by the company secretary that auditors checked the calculations.”

Gregor Stewart, deputy chairman, said: “We are committed to a full investigation of this…we aim to get to the bottom of it this time.”

Lord Smith said to Mr Wood: “Thank you for drawing it to our attention in the first place.”

In the previous error in 2013, a long-term incentive plan was stated as being worth 53.1 per cent, when it was actually worth 51.7 per cent.

The latest admission came as Lord Smith of Kelvin told the annual meeting that the £2.8billion trust would in future be held to account for its investment performance and its loss-making subsidiaries.

Shareholder Michael Gibson said: “The board has been revolving for many years, directors have come and left again quite rapidly with no explanation to shareholders. Could you assure us that the current and new directors are here for the long haul?”

In attempting to temper such anxieties, Lord Smith said it was a “heart not head” commitment on his part to take the chair of an important Scottish financial institution which nevertheless had needed to change. “I only took the role because I believed the plan was right and the team could deliver it,” he said. He told Mr Gibson he believed board colleagues were also committed for the long haul.

On the loss-making subsidiaries, the chairman said they now had independent boards, and Alliance Trust Savings management had been “challenged to deliver a profit in 2016”. The goal for Alliance Trust Investments was “to reach profitability”.

To that end, Lord Smith fielded pointed questions about the qualifications and commitment of the board, two of whom were nominated last year by activist shareholder Elliott Advisers following its assault on the board at last year’s meeting.

Chairing a seven-man board, five of them new and replacing three women, Lord Smith said a female director was about to be appointed.

In attempting to head off further queries relating to unreduced director fees, Lord Smith, who is paid a salary of £120,000 a year as chairman proffered the case that the trust’s overhaul was “demanding much more of directors’ time than would normally be the case”.

In reference to Ms Garrett-Cox’s pay-off earlier this year, which amounted to £668,000 along with retained share options worth £2.5m, Lord Smith said: “The important point is we paid her the amount to which she was entitled under her contract and in law, no more and no less,”

However, shareholder Jane Perry said: “My main concern with the previous chief executive was her seeming complete ignorance of what an investment trust is about, will the chairman consider some knowledge of investment trusts being a requirement for board directors?”

Lord Smith replied: “I think it’s a good idea. We will examine our requirements for future directors of the board.”