GP Investments Ltd. (GPIV11), the private-equity firm founded by Brazil’s richest man, should take a lesson from U.S. billionaire Warren Buffett and cut executive pay, shareholder NCH Capital Inc. told the company.
GP, whose shares plummeted 78 percent in the past five years, almost doubled pay for its management team to 24.5 million reais ($10.7 million) last year, when profit totaled 19.8 million reais, according to the Hamilton, Bermuda-based company’s regulatory filings. The firm posted a loss of 206.8 million reais in 2011.
“We demand that you change your compensation policies to align with shareholder interests,” James Gulbrandsen, NCH Brazil’s chief investment officer, wrote in an Aug. 1 letter to co-chief executive officers Antonio Bonchristiano and Fersen Lambranho. “Your current practices are not just indefensible, they are offensive.”
Gulbrandsen said the company should follow the example of Buffett, who as CEO of Berkshire Hathaway Inc. (BRK/A) takes a salary of $100,000 a year even as the firm’s shares climb to record highs.
“Mr. Buffett has mastered the very simple concept that the power of compounding earnings can create enormous wealth for his shareholders -- and himself -- over a long period of time,” Gulbrandsen said.
Buffett, 82, is the world’s third-richest person, with a fortune of about $60 billion, most of it in Berkshire stock, according to the Bloomberg Billionaire’s Index.
GP declined 2.7 percent to 3.65 reais in Sao Paulo today, a record low, compared with a 0.1 percent drop for Brazil’s Ibovespa benchmark index.
GP, which doesn’t publicly disclose how much each top executive is paid, declined to comment on NCH’s letter. The most highly paid officer last year received 2.32 million reais, while the biggest package for a board member was 5.59 million reais, according to a GP regulatory filing.
The company “seeks to compensate appropriately the competence and responsibility of its employees, adopting remuneration practices that reflect the company’s values,” GP said in the filing.
NCH, which Gulbrandsen said owns GP shares directly and through mutual funds, said if GP refuses to alter its pay policies, it should submit an offer to take the firm private that compensates investors for the true value of the firm. NCH in March urged GP to boost the number of shares it’s repurchasing as part of a buyback program.
NCH called “utterly embarrassing” GP’s previous record low closing price of 3.70 reais on July 31.
“The stock is not declining because your recent investments have been poor,” Gulbrandsen said in the letter. “In fact, we applaud the exceptional work your team has done in selecting its recent targets.”
The falling stock price instead reflects compensation that doesn’t align with shareholder interests, according to NCH, which said the shares could more than double if GP fixed its executive pay practices.
GP was founded in 1993 by Jorge Paulo Lemann, Brazil’s richest person, who isn’t a shareholder anymore. The company’s stakes include for-profit university Estacio Participacoes SA (ESTC3), refractory-material producer Magnesita Refratarios SA (MAGG3) and the cellular towers operator BR Towers SA.
NCH, which was also founded in 1993, manages about $3 billion of assets invested in equity, real estate, agribusiness and private equity, mostly in Russia and Eastern Europe, according to the New York-based company’s website. Gulbrandsen, who joined NCH in 2010, has worked previously for JPMorgan Chase & Co. and Morgan Stanley focused on mergers and acquisitions in Brazil, according to the website.
“GP’s public-company experience has been nothing short of a disaster,” Gulbrandsen said in an interview from Rio de Janeiro. “But they have the capacity to turn the experience into an enormous success.”