Tesco has received some grief about its board bonuses late:
Somebody noticed Tesco’s RemCom re-jigged the comparator group for the TSR element of the CEO’s LTIP:
The re-jig excluded Ocado from the comparator group part way through the LTIP term, due to Ocado becoming ‘technology focused’.
Had the re-jig not occurred, the CEO would have received only c33% of the LTIP shares he did receive.
The value of that LTIP was £2.4m:
So the re-jig gave the CEO an extra £1.6m (according to my rough sums and interpretation of these remuneration tables).
Interesting now to look at Ocado and its LTIP.
The Growth Incentive Plan paid out £87m to the executives:
The payout was made because Ocado’s shares delivered a 31% 5-year CAGR:
Shareholders gained an extra £7.5b of value during the same time, so the £87m “outcome was fair”:
Ocado’s LTIP was measured against the FTSE 100, which perhaps was not the most challenging benchmark.
I doubt Ocado investors are complaining too much about the £87m given their shares are up 31% pa since 2014. But the size of the payout and choice of benchmark might open the door for other RemComs to implement similar schemes – where a successful outcome may not require anything near a 31% 5-year CAGR.
These tales emphasis why I tend to look at ‘owner orientated’ firms – where management own significant shareholdings and are rewarded primarily (like outside investors) by share-price gains and dividends. A bit old fashioned, but I think such firms tend to be conservatively run and therefore not produce too many dramas.
Mind you, Buffett has said something along the lines of “if it ain’t broke, don’t fix it” when it comes to board pay (i.e. if the firm has done well in part by, say, issuing hefty options to motivate employees, then so be it). So maybe investors have to be pragmatic at times. No use investing in a company where the board has no incentive scheme and where the share price in turn goes nowhere.
What is the forum’s opinion? Accept professional CEOs will enjoy fortunate/re-jigged bumper paydays, and hope outside shareholders also benefit? Or carefully study remuneration reports for devoted ‘thin cat’ bosses?