‘Too much’
As even the bosses reject their bonuses as excessive, the spotlight turns on the paymasters behind them
WHEN you pocket millions of pounds a year, turning down the odd few hundred thousand in bonuses may seem an empty gesture. Yet hugely competitive chief executives who rank themselves against their rivals in terms of the money they earn, down to the last pound, do not give up any of their pay with a smile.
So it is notable that more and more bosses are declining excessive bonuses in an attempt to offset mounting shareholder anger as their businesses struggle in the recession.
But the focus is turning on the nonexecutive directors, usually equally well paid, who preside over board remuneration. And in the face of the ‘shareholder spring’ with bosses shamed into giving up what look like egregious rewards, more questions are being asked about the quality of the consultants who design pay packages and suggest the targets on which cash and long-term bonuses are based.
Critics argue that the performance hurdles are still far too low before bonuses and share awards kick in. Remuneration consultants are accused of using sloppy comparisons and creating an upwardsonly pay spiral for top bosses.
There are calls for the appointment of remuneration consultants and the fees they are paid – which can run into tens of thousands of pounds – to be put to the vote of shareholders at annual meetings.
Contracts that give enormous signing-on bonuses to incoming chief executives now have an air of hubris amid a prolonged recession and may draw the ire of fund managers, who are themselves being scrutinised over how they vote on pay at annual general meetings.
On Friday, Apple chief executive Tim Cook set a new benchmark in the debate by passing up £48 million in payments to ‘set an example’.
Last week, Tesco chief executive Phil Clarke became the latest FTSE 100 chief executive to capitulate after a decline in UK profits, despite reporting an overall increase in group performance.
Clarke said he would sacrifice a £372,000 bonus and make do with his £1.09 million base salary and £62,000 in benefits, including gym membership and a chauffeur.
Clarke’s actions, which came amid rumours of a full-scale revolt by store managers over their own plummeting bonuses, illustrates that the ‘contagion of principles’ has spread from state-controlled banks to other areas of industry. It will now add to the pressure on other bosses who are failing to turn their strategic vision into hard profits.
Marks & Spencer chief executive Marc Bolland faced questions over his pay last Tuesday after announcing a drop in profits. He also took an axe to his own sales targets after just 18 months, complaining the recession was going on longer than he had expected.
He was paid £4.2million last year and it has been estimated that he could receive up to £4million, well above his basic pay of £975,000.
That will include about £1million that M&S agreed to give him this year to compensate for bonuses he missed out on by leaving Morrisons in 2009 – even though these were long-term incentives to convince him to stay at his old employer. Several other chiefs including Royal Bank of Scotland’s Stephen Hester and Lloyds’ Antonio Horta-Osorio have refused bonuses. But Aviva chief executive Andrew Moss was forced out by disgruntled shareholders despite agreeing to waive part of his remuneration.
It will also be a particularly sensitive topic for M&S, where about 25 per cent of shareholders are members of the public, not professional managers who handle giant pension and insurance schemes.
They are likely to look askance at pay figures of several million pounds when the benefits of Bolland’s growth plan still seem distant. And it seems that M&S staff could get an average annual bonus of as little as £100 each compared with more than £300 last year because underlying pre-tax profits fell.
M&S is understood to have held internal meetings on Bolland’s pay. However, last week he refused to be drawn on the subject, arguing it was ‘for the remuneration committee’. This is chaired by Steven Holliday, chief executive of National Grid, where he is paid a basic salary of £946,000, rising to £2.27million with bonuses. He was also paid £85,000 last year for his position at M&S. The retailer declined to comment further and calls to Holliday by Financial Mail were not returned.
The annual report containing the details of Bolland’s pay will be published on June 7 ahead of the AGM on July 10. There will also be interest over whether executive targets have been lowered in line with Bolland’s new sales targets. Part of the executive bonus package requires directors to increase sales to between £11billion and £12.3billion, but Bolland has lowered the company target to £10.8billion.
However, reducing targets would be seen as moving the goal posts in a tougher economic climate to make the bonuses easier to achieve.
Sarah Wilson, chief executive at shareholder advisory group Manifest, said change in light of the recommendations of the 1992 Cadbury Report into corporate governance had been ‘glacial’.
Wilson said: ‘Over the past four or five years people have been toughing it out, but in the past six months attitudes have changed.’
She said closer scrutiny was needed over how packages were originally agreed and the balance between the influence of headhunters negotiating pay and the remuneration committee, advised by external consultants.
Wilson has also campaigned to persuade companies to spread the net wider in their search for nonexecutives and remuneration committee members.