CEO pay rises: justified or staff robbery?

As the government refuses calls to set caps on executive pay, Retail Gazette examines the pay rises on four high profile retail executives, and whether it’s time the industry changes its stance on sky-high c-suite remuneration.

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Earlier this month the UK Government turned down recommendations to give staff a say over their chief executive’s pay, rejecting calls for greater worker representation.

The Business, Energy and Industrial Strategy (BEIS) committee had urged the government to force firms to appoint at least one employee representative on their remuneration committees in March.

In its official response published on June 13, the government resisted calls for a stronger link between executive pay and ordinary salaries, stating that “the UK companies and group structures mean one method will not suit all”.

“The government’s response to our report on executive pay represents a missed opportunity to rein in bosses’ pay and link CEO pay to that of the rest of their workforce,” committee chair Rachel Reeves MP said.

“The public are rightly appalled by extravagant CEO pay packages. The success of a business is rarely solely down to the chief executive and there should be greater efforts to ensure that workers have a share in the profits too.”

Reeves previously warned that unjustified chief executive pay packages could be “corrosive of trust in business” in the UK.

The BEIS’s other recommendations included urging firms to set caps on executive pay and use profit-sharing schemes to link executives’ pay to average staff salaries. 

The government said it did not back calls for an absolute pay cap, saying it was for firms and their shareholders to decide on the appropriate model for them.

Rewards for risk?

There’s a perceived wisdom that chief executive pay offers rewards for risk. “Pay for performance” is the mantra most companies use when explaining their compensation plans, and it’s generally understood that a chief executive’s fortunes should rise and fall with the company’s fortunes.

Yet chief executives’ earnings at FTSE 100 companies have risen four times faster than the average national earnings over the past decade, according to a BEIS report. All this at a time when CVAs have resulted in almost 1000 store closures since 2017.

Meanwhile, a record net 2481 stores disappeared from the UK’s top 500 high streets in 2018 – 40 per cent more than in 2017. Not to mention that 164,100 retail jobs are expected to be lost in 2019 alone.

What happens when retailers are undergoing periods of monumental change, and years of store closures, marginal profit gains and missed targets? On one side, it’s clear strong leadership is needed more than ever to navigate a business out of tough trading. 

On the other hand, skewed bonuses and pay rises towards executives appear grossly unfair to staff. The Retail Gazette examines four examples of executive pay and bonuses increasing for retail executives, both in line and in contrast to their respective company’s fortunes.

Sainsbury’s chief executive Mike Coupe

Sainsbury’s chief executive Mike Coupe is on track to receive a 40 per cent boost to his annual bonus despite presiding over the Big 4 retailer’s failed merger with Asda.

Coupe, who last year was caught singing We’re in the Money while waiting to be interviewed on live TV about the now-failed merger with Asda, saw his total pay package increase to £3.88 million compared to £3.63 million in the year before, according to Sainsbury’s annual report.

Broken down, his overall pay rose almost seven per cent while his annual bonus came in at £593,000 – an almost 40 per cent increase compared to £427,000 last year.

However, Coupe’s deferred share award decreased 23 per cent to £582,000.

Finance chief Kevin O’Byrne and Argos boss John Rogers have also been lined up for pay increases this year, receiving £2.2 million and £2.5 million respectively.

It comes after Sainsbury’s was left with a £46 million bill for professional advice relating to its takeover of Asda, which the CMA ended up blocking in April.

At the time of its annual report being published, Sainsbury’s remuneration committee said it was “comfortable with the bonus outcomes, particularly when the broader context of the retail market performance is considered”.

However, just last weekend shareholder advisory body Glass Lewis challenged Sainsbury’s board and pay committee to explain the size of executive bonuses following a crash in shares.

“The committee have failed to outline the impact, if any, of the failed deal on the bonus outcomes of the executives, particularly in light of share price performance as a direct result,” Glass Lewis stated.

It warned the reward could represent “divergence of bonus outcome from shareholder experience”. 

Shareholders will vote on pay at the firm’s annual meeting on July 4, when Coupe is likely to face questions about the collapse of Sainsbury’s share price to below £2 a share.

“Executive pay at Sainsbury’s is set by the remuneration committee and bonuses are subject to stretching targets,” a Sainsbury’s spokesperson told Retail Gazette.

“The business has hit a number of targets this year, including increasing profit, reducing net debt and increasing the dividend, which is why we have paid a bonus to eligible colleagues across the group.”

Siobhain McDonagh MP, who often advocates for better working conditions for retail employees, said: “Executive bonuses are supposed to be about rewarding success, but what we repeatedly do in corporate Britain is reward failure. 

“Meanwhile, for longstanding shop floor staff with years of service, the same rules do not apply.”

Marks & Spencer chief executive Steve Rowe

Marks & Spencer’s boss Steve Rowe will see a 48 per cent rise in his pay packet for the year, despite the bellwether retailer revealing its third consecutive decline in full-year profits. 

With annual pre-tax profit down 9.9 per cent as the retailer’s restructuring plans take hold, all staff bonuses were cancelled across the company due to missed targets.

Despite this, due to a long-term bonus payout of £621,000 relating to a target Rowe achieved in 2016, the chief executive will see his total pay for the year rise by 48 per cent to £1.7 million, compared with £1.1 million a year before.   

M&S’s board decided to give Rowe a £24,500 pay rise to his basic salary of £810,000, although it noted he had not received a basic pay rise since 2016.

In M&S’s annual report for 2019, the retailer notes that “each executive director may receive a car or cash allowance as well as being offered the benefit of a driver”, a benefit Rowe takes advantage of, as did Patrick Bousquet-Chavanne until he left the company in summer 2018. 

“In line with the wider business salary increases of 2-4 per cent, Steve received an increase of three per cent,” a Marks & Spencer spokesperson told Retail Gazette.

“This is the first change to salary since his appointment to chief executive in 2016. No bonus has been awarded as threshold profit before tax target was not met this year.”

M&S also pointed out that no employees were awarded a bonus this year, and that their customer assistant rates are £9 an hour – ahead of the national living wage of £8.21 and in line with the Living Wage foundation rate of £9.

When executive salaries are so high, even a three per cent rise can be hard to swallow for staff seeing their benefits cut.

The deferred bonus dates back to 2016, the same year M&S came under fire for ditching its anti-social hours pay in order to offset a rise in wages.

Shortly after Rowe was appointed chief executive in April 2016, the retailer announced in June 2016 that it would boost basic pay by 15 per cent for its 69,000 shop-floor staff, but would cut pay premiums for staff working after 6pm, on Sundays or on bank holidays.

It was reported at the time that M&S executive directors declined any salary increases due in July 2017, but Rowe will now benefit from the deferred bonuses he was offered in the same year.

M&S did not comment when questioned by Retail Gazette on whether Rowe had been offered any similar deferred bonuses in 2019.

Emblazoned at the top of M&S’s annual report for this year is the statement: “M&S is a leading retailer with a strong and unique heritage of brand values, extraordinary colleagues and customers who want to see it succeed again.”

While there’s nothing untowards about the mathematics behind Rowe’s pay for this year, what kind of message does it actually send to its 80,000 employees concerned by store closures and another year without a bonus?

Asked to comment on the disparity of pay between retail chief executives and their workers, the Union of Shop, Distributive and Allied Workers (Usdaw) pointed out the discrepancies between sectors.

“Retail industry chief executives are some of the highest paid across the economy,” general secretary Paddy Lillis told Retail Gazette.

“Even in light of the crisis on our high streets, the discrepancy between chief executive pay and business performance has continued to widen.

“Staff are being asked to bear the brunt of pressures on businesses through fewer hours, restructures and job losses, while directors continue to receive substantial increases in pay.

“That is incredibly frustrating and can be demoralising, so there needs to be a different approach. The focus of remuneration policy should be on improving pay for retail staff who serve the customers.”

Meanwhile a spokesperson for British Retail Consortium (BRC) told Retail Gazette that “pay and remuneration is an operational matter for each individual business”, and declined to provide further comment.

The BRC’s neutral response raises the following questions: does the wider industry deserve a say in how its executives are remunerated, and the awards made available to them? Or should employees and customers alike consider it something they can vote with their feet with?

John Lewis Partnership incoming chairwoman Sharon White

Earlier this month John Lewis Partnership announced that Sir Charlie Mayfield will be replaced as chairman of the partnership by Ofcom chief executive Sharon White in 2020. White will be paid a £990,000 salary, which is a huge climb up from her £275,000 salary at Ofcom, although her new position is considered to be one of the toughest in retail. 

A long-held argument for high executive pay is that they help consistency with retaining chief executives, and by appealing to the best talent, they’re able to keep them. White was believed to be in line as governor of the Bank of England, where she would have received a salary of £480,000 – less than half of what she will now receive.

However, John Lewis Partnership’s staff – known as partners – will have to wait until her arrival in 2020 to see if she’s a worthy match for the firm, which owns the eponymous department store as well as Waitrose.

Executive pay may look unfair on the surface, but as we can see at John Lewis, they can also mean appealing to the best talent out there, and keeping them.

JD Sports chairman Peter Cowgill

For a final example, consider JD Sports. The retailer’s chairman Peter Cowgill is set to receive a £6 million bonus to reflect his “exceptional performance” and to compensate for a lack of pension contributions.

In its annual report published in May, JD Sports’ remuneration committee said Cowgill’s bonus would be paid in four equal instalments of £1.5 million in October and February, then again in October next year and February 2021.

The committee justified the bonus because Cowgill, who has led the sportswear retailer since 2014, has not received any long-term award under an existing long-term incentive plan in the past two financial years.

The committee also said there were no plans for Cowgill to receive “any awards under the executive long-term incentive plan for the forthcoming financial year or in the future”, and that he not received pension contribution payments since 2013.

JD Sports’ 10-year long-term incentive plan, adopted in 2014, pays bonuses sporadically and in cash instead of shares.

“The payment is, therefore, being recommended in part to compensate the executive chairman for [no pension contributions] and in part to recognise the exceptional performance,” the committee said in the retailer’s annual report.

Is a new approach to remuneration needed?

Retailers aren’t beholden to the general public or even its staff over pay. While many would look to the government to set caps around executive pay and bonuses, their reaction to the BEIS report suggests this won’t be happening any time soon, despite public outcry. 

Each retailer now faces their own challenges in navigating an unprecedented time for the sector, with those aforementioned CVAs, store closures and job losses changing the landscape. And yet salaries for executives remain sky-high, when virtually every other aspect of retailers’ finance has come under intense, renewed scrutiny.

“At a time of slow wage growth — when public attention is more focused on fairness in pay — these awards have served to undermine the reputation of British business and accentuate perceptions of unfairness,” states BEIS’ report on executive pay.

When retail executive salaries are set at these levels, both bonuses and expectations are always going to be skewed. Perhaps it’s time to re-examine the top-heavy approach to remuneration for morale for the rest of retailing staff, if nothing else.

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