The £2.7m pay deal for Royal Mail’s new boss Rico Back enraged shareholders
The disconnect between governance rules so readily signed up to by investors and their willingness to challenge what goes on in the boardroom is contemptible.
A week which began with the UK’s pliable corporate enforcer the Financial Reporting Council setting out tough rules for directors’ pay ended with high farce at the Royal Mail.
Shareholders rallied around the proposition that a £2.7million pay deal for the Royal Mail’s Zurich-based new boss Rico Back was poorly structured and too generous, and voted it down by 70 per cent of shareholders.
The Royal Mail’s complacent response was to observe that the vote was ‘non-binding’ and to suggest it would engage with shareholders in the autumn.
It’s likely they’ll face interrogation by a Commons select committee before then.
There was no effort by the Royal Mail to address a shoddy inter-company deal in which it signed a cheque of £6million to Back to buy him out of a contract with a fully-owned subsidiary GLS.
Nor has chairman Peter Long satisfactorily explained how it can ever be justified for the boss of a national institution such as the Royal Mail to be based outside the UK.
This paper has long been critical of the pay committees of public companies. Too often they rely on outside consultants rather than common sense to set levels of pay. And too often they are chaired by the weakest voice in the room.
This was true at Persimmon where the chair Jonathan Davie, a refugee from Barclays, came from a City background where outsized pay packages look normal.
Then there is the case of the academic turned non-executive Sir John Hood.
Having approved outsized pay packages for Sir Martin Sorrell at WPP he went on to agree a £14million a year pay-out to Helge Lund at the BG Group, which was trimmed in the face of investor anger.
The person in the hot seat at Royal Mail is Orna Ni-Chionna, deputy chairman of the National Trust, a director at Saga and luxury fashion group Burberry.
She and her fellow directors have been hopelessly wrong on the chief executive’s package at Royal Mail and the cash being ladled out to departing chief executive Moya Greene.
As a result Back is off to the worst of starts in his new job where all the focus is on his personal wealth, tax status and his living choices, rather than competence.
What is even more nonsensical is that, despite responsibilities elsewhere, Ni-Chionna has also ended up as chairman of the pay committee at Burberry.
It has outraged shareholders over the £13million golden goodbye to former boss and top designer Christopher Bailey.
If ever there was a company which cannot afford further pay rows, after years of excessive payments, grotesque expense accounts and housing allowances, it is Burberry.
Allowing the well-connected Ni-Chionna anywhere near Burberry – after getting the Royal Mail so wrong – is like asking a banned motorist to act as a driving examiner.
One doesn’t blame Ni-Chionna for this personally, but the system.
Feeble governance allows the same person to ‘overboard’ by collecting no less than three senior non-executive roles at iconic public companies.
Big battalion shareholders seem only too willing to let louche and foolish practices continue until something goes horribly wrong. What is needed is robust stewardship, common sense and better investor involvement.
Free market capitalism is having a horrendous year with the implosion at Carillion and the sins at the Royal Mail.
Overpaying people and burning cash on expenses is not Burberry’s only bad habit.
The luxury fashion group’s annual report reveals that last year it incinerated £29million of excess stock.
As a high-value brand it would prefer the stuff it is left with goes up in smoke rather than end up at TK Maxx.
Main reason for the bonfire in 2018 was a contract with cosmetics group Coty which left it with too much stuff.
As Burberry has moved upmarket, so the waste pile has grown larger soaring from just £1.6m a decade ago.
Burberry is not alone.
Luxury rival LVMH does the same rather than risk its brand image.
In bad years Swiss watch makers have been known to take the sledge hammer to some of their most valuable chronometers.
And they are meant to be timeless.