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£100m bonus – nice for some?

August 31, 2021

Mike Ashley’s 31-year-old son-in-law, Michael Murray, will become the chief executive of the Frasers Group in May 2022. Under a proposed bonus plan, Murray will receive a bonus of £100m, if the share price reaches £15 for 30 consecutive trading days before October 2025.

The company characterised the target – which would mean that the share price is more than double its current value - as “challenging but achievable”.  

The group’s Sports Direct business has frequently been accused of providing poor working conditions and has been criticised from a corporate governance perspective. Mike Ashley retains majority control and has robustly defended his stewardship.  

Murray’s bonus arrangements have attracted considerable adverse comment, with some arguing that the concentration on the share price metric could incentivise short-term decision-making and detract from a broader evaluation of the wider and longer-term factors relating to the business.  

Corporate governance concerns have also been raised in respect of online retailer The Hut Group, which pays an estimated £19m per year in rent on properties which were transferred into the personal ownership of Matthew Moulding. Moulding, who is both the chairman and chief executive, holds a special share which effectively enables him to veto potential hostile takeovers, and wields great power over the business.

Moulding’s defenders lionise him as a British success story, a self-made billionaire who grew up in a Lancashire house with an outside toilet. It is argued that the group’s 2020 IPO and subsequent capital raising transactions demonstrate ample recognition by the market of the value created by Moulding, and that where businesses so heavily revolve around key individuals such as Moulding or Ashley, it is appropriate to depart from conventional corporate governance norms.  

The pandemic has had such a pronounced impact on so many sectors of the economy that the immediate priority has been survival, even at the cost of sometimes radical measures. The so-called fire-and-rehire proposals of British Airways have apparently seen some staff facing a 50% drop in wages. Some 6,000 applications were made for voluntary redundancy, in some cases reportedly due to older, long-serving staff feeling pressured to take voluntary redundancy in order to avoid losing their jobs anyway and being left with only statutory redundancy pay.  

With many office-based workers expected to return to the office for at least part of the week from September, the after-effects of coronavirus will be felt in different ways across a range of sectors. Whilst some workers enjoy working from home for some of the time, facilitating childcare arrangements and saving commuting costs, staff in spheres such as retail, leisure and hospitality generally need to be physically present at their workplaces.

Such staff often have less flexibility than white-collar workers and may also face more precarious conditions as sectors such as travel and retail try to bounce back from the pandemic. The notion that “we are all in this together” may become increasingly frayed.

Employees, institutional investors and the market may afford a fair degree of latitude to businesses which take strong measures in order to sustain their long-term viability, and the niceties of corporate governance best practice may remain on the backburner for the time being.

But memories can be long and the climate will change as the economic cycle moves on. If cost-cutting is done too ruthlessly now, and if rewards are not equitably spread when better times return, businesses can expect the spotlight to return once more to corporate governance concerns, and they will need to ready to respond.

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