Rose rightly rejects a reward that was too high
The Marks & Spencer (LON:MKS) chairman’s agreement to forego £1m of bonus doesn’t simply show a fear of shareholders rejecting the company’s remuneration report, it reflects overgenerous rewards agreed in less critical times.
With the new militancy among institutions investors, many companies might want to consider trimming their reward packages before suffering embarrassment at the annual meeting. Incentive packages of several times basic salary have become the norm at some large companies, effectively providing a guaranteed bonus.
There was a time when bonuses added a small proportion to basic pay; now they are frequently a multiple of salary making the monthly pay cheque look like loose change.
Sir Stuart Rose, the M&S chief, could have received three times his £1m-plus salary in shares under the long-term incentive scheme. His deal with shareholders reduces that to two-times his regular pay - which is still generous.
It happens that Rose was already at odds with his shareholders. They always doubted his decision to become chairman and chief executive and feel vindicated by the retailer’s poor performance. Cutting the dividend while boosting his bonus would have been a final straw.
Yet the problem starts with the remuneration committee which wrote the original terms. In boom days, a three-times bonus might have seemed acceptable but in recession it is indefensible.
Other companies should take note. It is not too late to rewrite rewards contracts, especially if trouble is looming at the annual meeting. And for contracts being drawn up now there is no excuse for excess bonuses.
The generosity of state-owned Royal Bank of Scotland to its new chief executive has already been commented on by this blog. If £10m seems high now when his bonus is hypothetical, watch for the storm when the bank starts to issue the shares at prices that already look ridiculously cheap.
