2019 AGM LTIP resolution voting and proposed actions
IQE plc
(“IQE”, the “Company” or the “Group”)
2019 AGM LTIP RESOLUTION VOTING AND PROPOSED ACTIONS
At the AGM on 25 June 2019, 42.9 percent of shareholders voted against the resolution to approve the adoption of the 2019 IQE Long Term Incentive Share Option Plan (“2019 LTIP”).
In line with Provision 4 of the UK Corporate Governance Code 2018, this announcement is intended to outline the Company’s understanding of the reasons behind the 2019 AGM LTIP resolution voting result and to provide an update on the actions of the Remuneration Committee and Board as a result of the vote.
The 2019 LTIP replaced the previous Executive Share Option Scheme approved by shareholders at the AGM in July 2009 and was intended as a natural update to the prior rules, which had not been the subject of any representations from shareholders since it was approved by shareholders in 2009. Accordingly, the Remuneration Committee did not anticipate any significant dissent and therefore did not seek to engage shareholders in advance of submitting the plan to an advisory vote at the 2019 AGM.
The Board was aware however that in advance of this year’s AGM, Institutional Shareholder Services (“ISS”) issued a report in which it recommended that shareholders vote against the resolution to approve the 2019 LTIP plan, citing two principal concerns:
1. That the dilution limits sought under the plan exceeded the standard dilution limit expected by institutional investors of 10% in 10 years for all of the Company's share schemes; and,
2. That the plan permits the vesting of outstanding options to good leavers without a pro-rata reduction to vesting based on performance and the portion of the vesting period expired up to the time of the termination of employment.
Prior to and following the AGM, the Board engaged with shareholders, emphasising that as a global technology company with the majority of its operations employing staff in Asia and the USA, share options are considered an essential tool for the Company to attract and retain the world-class talent required to sustain and grow our business. The adoption of the 15% dilution limit in 10 years in 2009 was intended to ensure that we would have sufficient flexibility to offer competitive rewards to highly-sought after candidates in critical roles throughout the entirety of the organisation, as all IQE employees are offered share options as part of their compensation packages.
The Board would also state that since IQE’s award levels are typically denominated in percentage of salary terms, dilution is also a function of the prevailing share price. With the current IQE share price notably higher than over the period 2009-2016, it is considered significantly less likely that the exceptional dilution limit set out in the 2019 LTIP scheme will be utilised.
Notwithstanding the above and that the 2019 LTIP resolution was ultimately approved at the AGM, the Board recognises that the significant vote against is an indication of the strength of shareholder sentiment in this area. The Board has therefore resolved to take the following actions in response:
- The Remuneration Committee will undertake a review of the Directors’ Remuneration Policy with a view to submitting a new Policy to shareholders at the 2020 AGM. As part of this review, the Remuneration Committee has undertaken an exercise to understand when IQE expects to be able to comply with the standard 10% dilution limit. The result demonstrated that, due to the number of share options currently outstanding to all IQE employees, a reduction to the 10% dilution limit is not currently feasible. However, the Board recognises the importance of moving to a 10% dilution limit and is committed to doing so over time; and,
- The Board is taking steps to amend the LTIP plan rules to align the leaver provisions for all employees to those set out for the Executive Directors. This language will make clear that the maximum potential entitlement for a good leaver will be a pro-rata vesting of outstanding awards i.e. taking account of the time from grant to the time of departure as a proportion of the full vesting period.
CONTACTS
IQE plc
+44 (0) 29 2083 9400
Drew Nelson
Tim Pullen
Peel Hunt LLP (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Edward Knight
Nick Prowting
Christopher Golden
Citigroup Global Markets Limited (Joint Broker)
+44 (0) 20 7986 4000
Christopher Wren
Peter Catterall
Headland Consultancy (Financial PR)
+ 44 (0) 20 38054822
Andy Rivett-Carnac: +44 (0) 7968 997 365
Tom James: +44 (0)78 1859 4991
ABOUT IQE
IQE is the leading global supplier of advanced compound semiconductor wafers that enable a diverse range of applications across:
- handset devices
- global telecoms infrastructure
- connected devices
- 3D sensing
The macro trends of 5G and connected devices are expected to drive significant growth for compound semiconductors over the coming years.
As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in this market which has high barriers to entry. IQE supplies the whole market and is agnostic to the winners and losers at chip and OEM level. By leveraging the Group’s intellectual property portfolio including know-how and patents, it produces epitaxy wafers of superior quality, yield and unit economics.
IQE is headquartered in Cardiff UK, and is listed on the AIM stock Exchange in London.
