Cairn’s Stanley tops pay table with €22m

Share scheme sees Cairn boss top the list as debate on bankers’ bonuses goes on, writes Gavin McLoughlin

CAIRN Homes boss Michael Stanley has toppled CRH boss Albert Manifold as the best-paid chief executive of an ISEQ20 PLC.

Stanley topped the charts in this year’s edition of the Sunday Independent pay table, boosted by a private-equity-style founder share scheme which made up the vast bulk of his €22.73m package.

Manifold (€8.7m), who was top for the last two years in a row, is in fourth behind Kingspan boss Gene Murtagh (€12.41m) and former Paddy Power Betfair chief Breon Corcoran (€10.73m).

In fifth is Irish Continental Group’s long-serving chief executive Eamonn Rothwell (€8.39m).

The figures here are cal- culated from information made available by ISEQ20 companies in annual reports.

They are calculated before tax and cover each company’s 2017 financial year — not in all cases the 2017 calendar year.

Remuneration packages, as broken down by the company, were added to shares or share options that became unconditional entitlements of the chief executive during the year.

Paper profits, made from turning share options into actual shares, were included also.

Executive pay has made headlines recently after Finance Minister Paschal Donohoe blocked plans for a bonus share scheme for AIB executives.

WHAT motivates leading business executives to get out of bed in the morning? Is it a desire to fulfil their goals? To make a positive difference in the world? To build a business? Or is it the accumulation of wealth? The logic behind the modern executive pay structure suggests that the latter is an important part of the mix.

Most plcs have what is known as an LTIP (long-term incentive plan) as a key pillar of their remuneration packages, and often it is these schemes that are the single most lucrative part of a chief executive’s remuneration package.

The idea behind it is to link the chief executive’s financial interests with those of the shareholders. There are, of course, differences between various LTIP schemes, but the typical programme would see the CEO granted shares in the company, or share options, if the company meets specified performance targets. That means the CEO is incentivised to perform in such a way that the shares rise.

It’s understandable that a company without an LTIP scheme (or other financial incentive) may wish to have one if their rivals do.

Witness the moves at AIB to introduce a new bonus share scheme for executives. The scheme has been blocked by Paschal Donohoe and it’s easy to imagine that the bank fears the loss of top staff.

While the popularity of share bonus scheme has risen in plcs, shareholders are less enthusiastic. At its 2016 AGM, Kingspan saw around a third of shareholder votes go against the motion on remuneration, with chief executive Gene Murtagh telling reporters this was because of a mid-year change to a bonus scheme.

In the same year, around 40pc of votes went against a bonus plan for CRH boss Albert Manifold.

But these levels of dissatisfaction are unusual for Irish plcs, where remuneration reports are usually passed by shareholders with minimal dissent.

And analysis by the Sunday Independent shows big rises for many bosses in 2017, as the economic backdrop continued to approve.

The figures here are calculated from information made available by ISEQ20 companies in their annual reports.

Remuneration packages as broken down by the company were added to shares that became, to use the corporate jargon, ‘vested’ in 2017 based on past performance (meaning they become an unconditional entitlement of the chief executive). Paper profits made from turning share options from incentive plans into actual shares.

The figures are calculated before tax and cover each company’s 2017 financial year — which is not in all cases the 2017 calendar year. 1 MICHAEL STANLEY, CAIRN HOMES, €22.73M A private-equity-style “founder share” scheme propels Stanley to the top of the list. The scheme makes up the vast bulk of his package.

He does not participate in an LTIP on foot of the founder share scheme, which entitles him and co-founders Alan McIntosh and Kevin Stanley to large amounts of Cairn shares if certain performance criteria are met.

The policy was agreed with the company’s key investors and Cairn has previously said that it was a reflection of the value created (but not taken) by the founders in developing the company prior to the IPO. For 2017, Stanley’s remuneration package of €797,000 is dwarfed by the value he received in shares.

On August 18 2017, he received 13,539,852 Cairn shares. Based on a closing price of €1.62 on that day, the shares were worth €21.93m, for a total package of €22.73m. Half the shares are subject to a two-year lockup, and the other half have a one-year lockup.

Things are going well for Stanley at Cairn, with house prices continuing to rise and the buildout of their portfolio progressing. A similar founder share scheme is in place at Cairn’s newly-listed rival Glenveagh, so watch out for Glenveagh boss Justin Bickle in the years ahead. 2 GENE MURTAGH, KINGSPAN, €12.41M A big jump this year for Murtagh, who is presiding over a standout performer among Irish plcs. Last year was another record year for the company, with revenue up 18pc and trading profit up 11pc. The performance is all the more impressive considering the fact that Kingspan does a substantial amount of business in the UK. The company has warned of a sluggish start to 2018.

The key to the bump for Murtagh was his decision to convert a large chunk of share options into Kingspan shares. His basic package was actually down on last year at €1.54m. But the share move — carried out in two tranches — saw him turn more than 330,000 options into Kingspan shares, worth more than €10m as of the dates in question.

A further 55,121 share options vested for Murtagh during the year, which we are not including here to avoid the risk of double counting on the two larger deals. 3 BREON CORCORAN, PADDY POWER BETFAIR, €10.73M Corcoran left his role as Paddy Power Betfair boss at the beginning of this year. His timing looks prescient after the company’s first trading update of 2018 was pretty disappointing.

It’s an interesting time for the company with intense competition, growing regulatory pressures and the shift to digital all posing challenges for new chief executive Peter Jackson.

Corcoran’s pay package is probably the most complicated of all the ISEQ20 bosses as it includes legacy aspects relating to his time at Betfair when it was a separate entity.

We put his package at €10.73m, based on the euro-sterling exchange rate at the end of 2017. The most lucrative aspect was the vesting of 72,361 share options under a Betfair scheme.

The merger allowed for Corcoran to exchange his Betfair awards for equivalents over Paddy Power Betfair shares. Based on the share price on the vesting date, we attribute a value of more than £6m to this aspect of Corcoran’s pay. The options had not been exercised as of the end of 2017. 4 ALBERT MANIFOLD, CRH, €8.7M Manifold came on top in this exercise in both 2016 and 2017, and his position shows that pay doesn’t necessarily correlate with a company’s scale.

CRH is the biggest company by market cap in the ISEQ20 and Manifold is continuing to do well there, with sales up 2pc in 2017 and ebitda up 6pc.

The company’s M&A-heavy model is not without risk but Manifold believes there is lots of life left in it. “There’s significant fragmentation still in the industry and there’s decades of growth for us to go forward here,” he said. With the global economy in good shape you would expect CRH to continue to perform.

Manifold’s figure here is based primarily on his basic package of €8.66m, with the exercise of a small number of share options bringing him to €8.7m. 5 EAMONN ROTHWELL, IRISH CONTINENTAL GROUP, €8.39M Another strong year for Eamonn Rothwell, who at this stage is Mr Irish Ferries. Football fans (and non-football fans) will have noticed the media kerfuffle over the departure of long-time Arsenal boss Arsene Wenger after 22 years.

Well, Rothwell was appointed chief executive of ICG four years before Wenger took the reins at Arsenal. The key part of Rothwell’s figure is his decision to exercise 1.5 million share options in a move worth more than €5m.

Last year was mixed for ICG, with revenue up but ebitda down. The company was hit by increased fuel costs and weaker sterling, and fuel costs continue to rise this year. 6 STAN McCARTHY, KERRY GROUP, €5.74M McCarthy is another on the list who has left his role, which is now filled by Edmond Scanlon.

Scanlon previously headed up the company’s Asia division — a reflection perhaps of the company’s previously stated desire to expand significantly in that region.

Last year saw increases in revenue and trading profit at Kerry, which is best known for its consumer brands but now does most of its business in ingredients and flavours, via its taste and nutrition division. Earlier this month a trading update was positive, with volumes up and group margin maintained.

McCarthy’s figure here is derived from converting his basic package into euro from dollars at the exchange rate from the end of 2017. The vesting of a number of shares in the early part of 2017 is also included. 7 KEVIN NOWLAN, HIBERNIA REIT, €3.56M A most interesting new entrant here on foot of Hibernia’s decision to internalise its management team.

Previously, Nowlan had been operating under an ‘investment manager agreement’ which saw much of his pay go to an external company, which included others linked to Hibernia.

This meant it was difficult to get a read on what he was getting as an individual.

The 2017 annual report reveals that on top of a basic package of €364,000, €3.2m was due to Nowlan for the financial year under the internalisation agreement.

The outlook for Hibernia appears rosy as demand for office space in the capital remains strong. 8 MICHAEL O’LEARY, RYANAIR, €3.26M O’Leary is a chief executive who always seems underpaid on a year-to-year basis when you consider the scale and success of Ryanair.

But it’s easy to forget that over the year’s he’s amassed over 50 million Ryanair shares and five million share options (that’s worth roughly €850m).

Last year was something of an annus horribilis for the airline with the pilot-rostering debacle proving highly embarrassing. The company has also made the landmark decision to recognise trade unions in recent times.

O’Leary’s contract expires next year and it might well be that his time at Ryanair is drawing to a close. Peter Bellew recently left the job of chief executive at Malaysia Airlines to come back to Ireland as Ryanair’s chief operating officer, and one wonders whether he might be the eventual successor. 9 SIOBHAN TALBOT, GLANBIA, €3.1M Interesting times at Glanbia which, according to Central Bank data, is the most shorted stock on the Irish Stock Exchange.

The shares are down from €18.10 to €14.10 in the last 12 months with currency headwinds playing a part.

Revenue in the first three months of this year was down 8pc on a reported basis, but up 4pc on a constant currency basis. The key is the weakening of the dollar versus the euro, as Glanbia does a lot of business in the US.

In addition, the rise in bond yields has hit the company too, according to some analysts, who say that businesses like Glanbia are seen as an alternative to bonds when yields are low.

The company is guiding an 8pc headwind if euro-dollar stays like it was at the end of April, which is far from ideal. Further diversification may be required. Talbot’s figure here includes €1.95m of a basic package as broken out by Glanbia plus €1.1m from vested share options as of the vesting date. 10 TONY SMURFIT, SMURFIT KAPPA, €2.94M Tony Smurfit is very much in the spotlight these days on the back of a takeover approach from rival International Paper (IP).

The Americans have come in with a big offer on the table and Smurfit and his colleagues will really have to deliver the goods in order to justify their reluctant attitude.

Two indicative proposals have been rejected by the Smurfit board — it remains to be seen whether there will be a third.

A strong earnings update for the first quarter will help Smurfit make the case that his company is better off as a standalone.

But the rationale for a combination — with Smurfit strong in Europe and IP strong in the US — seems pretty compelling on the face of it.

Smurfit’s figure here is based on his package as broken out by the company, plus LTIP benefits that vested in the early part of 2017.