M&S Hello Bonus Breaks Retailer's Golden Handcuffs

Following on from David Bolchover's comparison between what passes for talent in business and prowess on the football pitch, here is a real-world example of how stellar pay-outs are bending corporate conventions out of shape.

Marks & Spencer and Morrisons are retailers, not football teams, but the £7.5m payment for the latter's chief executive moving to Marks is a transfer fee in all but name.

Marc Bolland will receive a further bonus of £6.3m is he performs well at this new employer â€" plus his near-£1m annual salary â€" but that £7.5m is his merely for turning up on his first day. In business it's known as a golden hello.

The payment represents the value of the bonuses Bolland could have received from Wm Morrison if he had stayed there: Marks is paying it so that he doesn't lose out and his old employer thus saves having to pay the sum.

So even though the money goes to the chief executive, Marks is £7.5m worse off and Morrisons that much better off, the same effect as if Marks had passed the cash directly to its rival.

Bolland's ability to demand such compensation says something about his perceived management skills but M&S's need to pay it smacks of desperation.

Shareholders had put the pressure on the company to fill the void left by Sir Stuart Rose's departure from the roles of CEO and chairman as soon as possible. They were not consulted on Bolland's pay but they ought to be concerned. If Marks had had better succession planning it would have had a pool of internal candidates who could have moved into the top post without the need for a transfer fee.

Marks has paid a premium for having to poach an outsider and his remuneration runs contrary to compensation trends in other c-suites.

The average pay for FTSE 100 chief executives fell 1 per cent last year with bonuses plunging 20 per cent, according to accountants PricewaterhouseCoopers. In the next 250 largest quoted companies, pay was flat with bonuses tumbling by a similar amount.

But while incumbent managers' pay was frozen, there are still rises for those recruited from outside. And if moving is the means to obtain a substantial increase, it is easy to see why chief executives are so ready to switch jobs.

The Morrison bonuses scheme was designed to encourage Bolland to stay: Marks's payment to buy him out has demolished that objective. Yet unless Bolland intended to remain at Morrisions for life â€" unlikely, as he has now had three chief executive roles in five years â€" then he should have assumed that those future bonuses would be lost when he left.

If transfer fees are to become common, then long-term incentive schemes lose their value in retaining executives for the long-term.

(Pic: captain.orange cc2.0)