Investors underline need for Sly’s pay to mirror returns
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
TRINITY MIRROR chief executive Sly Bailey is paid about £1.7m a year . . . and that’s got the goat of top shareholders.
The company publishes the Daily Mirror, a tabloid whose punchy editorials are littered with bolding, italics and underlining. But disgruntled investors will be doing the straight talking when they meet new chairman David Grigson. “How come,” they’ll ask, “Sly took home £1.7m in salary, bonus and pensions contribution in 2006, 2007, 2009 and 2010 when the shares have fallen 90 per cent since 2005?”
The tough-minded former ad saleswoman earned almost as much in 2010 as Erik Engstrom, square-jawed boss of Reed Elsevier, another media business. But Reed has a market capitalisation of more than £6bn. That compares with a paltry £120m for the newspaper publisher. Online competition, chunky debts and a decline in advertising have laid Trinity low. The company, while still profitable, has paid no dividends since 2008.
Ms Bailey’s base salary is £750,000. That looks about right for the boss of a large but struggling business. She has, quite rightly, missed out on a slew of share-based pay-outs because of share price weakness. What fattens up her total remuneration is a cash bonus triggered when operating profits beat an internal target.
But that takes no account of rewards – or the lack of them – to shareholders. So the mechanism that yields Sly’s pay-outs is a bad one and should be replaced.
The bigger question facing Mr Grigson is whether to replace Ms Bailey with a troubleshooter. Trinity’s board should, meanwhile, shake up pay arrangements. Otherwise it could provoke a damaging protest vote at the next annual meeting. And that’s a point worth making with every tool in the typographical toolbox.
Phoenix flashback
A disciplinary complaint against retired accountant Maghsoud Einollahi and his erstwhile partnership Deloitte raises topical questions about the public responsibilities of bean counters. But it involves a very old case. In 2000, four unimpressive Midlands industrialists called the Phoenix Four (a name tellingly redolent of a pub rock band) bought Rover Cars for £10 from BMW. The unprofitable Birmingham car maker, which had net assets of some £750m, failed with 6,000 job losses in 2005.
Meanwhile, Mr Einollahi, a corporate finance partner of Deloitte, helped the four who were, for a period, popular heroes in Birmingham, enrich themselves. One scheme was called Project Aircraft. According to a report from government commissioners published in 2009, this siphoned some £7.7m derived from the car company’s tax losses into a Guernsey trust benefiting the quartet. Deloitte got fees of £1.9m for that. Then there was Project Platinum, through which the men personally acquired Rover’s lucrative finance arm. The commissioners estimated the likely returns to the group at £14.3m, adding to pay-outs and benefits of £36m that were already “unreasonably large”. Deloitte’s total fees were £30.7m.
The four did nothing illegal. But they had, with professional advice from Deloitte, acted badly. They were disqualified as directors in 2011. The conduct of their accountant was disquietingly detailed in the commissioners’ report, which nevertheless withheld serious censure. A disciplinary complaint to the Accountancy and Actuarial Discipline Board is long overdue. But it is also well-timed. This case should help stoke the current hot debate on the appropriate duties of accountants.
Paysetters outpaced
High executive rewards are prompting heart-searching even among those that set them, writes Alison Smith. A survey of chairmen and non-executive directors carried out by headhunters Hanson Green and Directorbank found that three in 10 members of remuneration committees believed that executive pay at their own companies was too high.
Ken Brotherston, executive chairman of Directorbank, suggests these unhappy paysetters may feel trapped by market rates, perhaps as recommended by remuneration consultants; or that they are spread so thinly they are consistently outnumbered, yet stay in post believing their presence still provides a brake on pay deals. Groupthink is another possibility: pay levels that feel restrained in discussions with remuneration committee colleagues may seem high when answering survey questions on one’s own.
Though the response suggests something is wrong in the boardroom, a result showing that all remco members believed executive pay levels were fine would be more unpalatable. That would put them on a par with High Court judges for being out of touch.
Pay survey: alison.smith@ft.com
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