McFarlane gets backing as FirstGroup attacked

FIRSTGROUP chairman John McFarlane is understood to have received broad support from major shareholders after an activist investor launched an attack over the transport giant’s executive pay plans.

John McFarlane: Good response to turnaround plans

New York-based hedge fund Sandell Asset Management, which owns about 3.1 per cent of FirstGroup, put pressure on the firm last year to split off its US operations and is now calling on other shareholders to vote against the remuneration report at this month’s annual meeting.

In an open letter to McFarlane, the hedge fund’s founder and chief executive, Tom Sandell, said FirstGroup boss Tim O’Toole was paid more than other transport chiefs but shareholder returns from the Aberdeen-based bus and train operator have fallen 8 per cent in the past five years, compared with a 231 per cent increase for its peer group, which includes Go-Ahead, National Express, Stagecoach and Student Transportation of America.

O’Toole saw his total pay package almost double to £2 million last year – a period that saw FirstGroup launch a deeply-discounted rights issue to defend its credit rating.

Sandell, who also raised concerns in his letter about a lack of sector expertise on the group’s board, said: “We are strong believers in pay for performance. We simply do not believe that a 94 per cent rise in remuneration package is deserved for Mr O’Toole’s 2013-14 performance.”

A spokesman for FirstGroup said: “The board is open to all means of enhancing long-term value for the group’s shareholders and welcomes their views. However, it believes the current multi-year recovery programme, which is making progress, will enhance the resilience of the group, improve profitability and growth, return the business to sustainable cash generation and increase returns to shareholders.”

FirstGroup, which saw its pre-tax profits rise 23 per cent last year, is due to hold its annual meeting on 16 July. A source said McFarlane, who oversaw a boardroom clear-out in May, had received a “good response” to the firm’s turnaround strategy during talks with major investors.