PANDEMIC pay battles
Boardrooms face an extraordinary backlash as bosses pocket millions more during Covid-19. Watch out for the . . .
HOSTILITIES have broken out between some of the UK’s leading companies and their shareholders over enormous bonuses granted to bosses for the pandemic year of 2020.
Investors are protesting at a string of household name businesses, including Premier Inn owner Whitbread and retailer JD Sports, both of which have availed themselves of millions of pounds of taxpayer support.
Pay rows are a perennial feature of corporate Britain.
But unease over large pay packets and the resentment they foster has taken on an added edge due to Covid. Whitbread, which made a £1bn loss last year and suspended its dividends, is facing a showdown with investors at its annual meeting on Thursday.
In April the no-frills hotel group confirmed 1,500 job losses due to the sharp downturn in trade.
The Investment Association, which looks after £8.5trillion for savers and investors, and is one of Britain’s most powerful voices on executive pay, has issued a ‘ red top’ warning against the company.
‘Red tops’ are relatively rare. They are the association’s strongest signal of disapproval, indicating it believes the company has breached its best practice or its guidelines.
Advisory group ISS has also recommended that shareholders abstain from voting on the pay report. ONE leading shareholder which wished to remain anonymous told the Mail it would be voting against. JD Sports is under attack after handing its executive chairman Peter Cowgill a £4.3m bonus, even though its UK employees took just over £60m in furlough payments.
Advisory group Glass Lewis is recommending shareholders vote against the ‘ inappropriate’ pay policy at the annual meeting next month.
Cowgill conceded shareholders ‘may well’ vote against the award, but on BBC Radio 4’s World at One, he questioned why they would ‘ when the company has progressed’.
Cowgill enjoys the protection of a powerful majority shareholder, the Pentland Group, controlled by the family of charitable giver Stephen Rubin. The row at Whitbread is over the treatment of annual incentives for its top bosses, including chief executive Alison Brittain.
She became eligible for £729,000 for last year under the incentive scheme. Whitbread’s pay committee decided that no payment should be made this year and Brittain is understood to have made clear she did not wish to receive one.
Instead, ‘the incentives which have been earned should be carried over to next year’ and only released ‘subject to continued strong performance’.
This has failed to appease some shareholders and lobby groups, who feel any bonus in respect of last year is unacceptable.
The pay committee feels she did a good job steering the company through one of the most difficult periods in its long history.
It fears that she may defect to private equity where her pay would remain confidential.
Her supporters, including some investor groups, point out that Brittain – paid a total of £15m since joining in 2016 – took a big pay cut in 2020.
Her overall package fell by more than half to just over £1m and she does not have a long-term incentive plan. But critics are unconvinced. ‘The pandemic has hit everyone,’ said one City source.
‘Why should top executives, who can well afford a lean year or two, be shielded when small business owners, employees and entrepreneurs are not?’
At the core of the debate are difficult questions over what expectations society should have of business leaders in a crisis.
Some believe chief executives are well paid for their ability to navigate a crisis and doing so, as they have with the pandemic, is their duty.
But some pay committees, which are normally made up of corporate bigwigs, feel executives should be feather-bedded against the financial effects of Covid-19, because it wasn’t their fault.
In some instances, this has resulted in attempts to move the goalposts so rewards can still be dished out, even if targets have been flunked.
Technically, this is legitimate, as the formulae for calculating bonuses can often be altered at committees’ discretion.
At supermarket group Morrisons, 70pc of shareholders voted against the remuneration report after the committee adjusted for £290m of Covid costs when working out whether targets had been hit. Adding back these costs, the profit hurdle was indeed met, when it otherwise would have been missed, and chief executive Dave Potts received a bonus of £1.7m, taking his total pay to just over £4m.
That made him the best paid boss of Britain’s top three listed supermarkets, ahead of the Tesco and Sainsbury’s chiefs, neither of whom took a bonus.
Morrisons is the smallest of the trio and was kicked out of the FTSE 100 index this year.
Other businesses including events group Informa have suffered pay revolts. This month, more than 60pc of shareholders opposed the pay report. ESTATE agents Foxtons and Savills will no doubt have added to their general unpopularity by provoking big protest votes. Among the requirements of 21st century business leadership are the qualities of sensitivity and solidarity. Chief executives are supposed to be attuned to their customers and staff, and to behave accordingly.
Top pay is a particularly touchy subject in businesses such as Whitbread, JD Sports and Morrisons which have millions of ordinary Britons as customers and employ thousands of modestlypaid staff.
Brittain was last year paid 53 times as much as a median average full-time employee; David Potts 200 times and Peter Cowgill more than 300 times.
Rewards on this scale, however talented the recipients, inevitably spawn social division.
They arise from an unholy alliance of grasping executives, weak pay approval committees and remuneration consultants.
Wrangles over whether multimillionaire executives should receive still more in the midst of a national health and economic emergency are unedifying.
They also harm the image of UK plc. Rightly or not, they paint a picture of selfish individualists preoccupied with their own already bulging pockets.
This is unfair on the many leaders who have behaved responsibly in the crisis, and it gives needless ammunition to the left.
As the former Bank of England Governor, Mark Carney, has observed, we may all be in the same storm, but we are not all in the same boat.