Shareholder anger over executive pay is increasingly focusing on large retention payments offered to directors who leave soon after collecting them.
Here is Aon Corporation chief executive Greg Case speaking in 2006, having struck a deal to keep Aon Ltd boss Dennis Mahoney at the company until 2015: “I am very pleased Dennis will be part of our leadership team for the long term [and we] will continue to benefit from his exceptional experience and visionary leadership.”
And here he is again, singing Dennis’s praises three years later – at Mahoney’s retirement. “It is with great appreciation for an incredible career that we announce that one of Aon’s most recognised industry veterans is retiring…”
That is the problem with retention deals: they have a habit of making people who hand them out look rather silly. So after bookmaker William Hill risked irritating its investors again this week by giving chief executive Ralph Topping £1.2m in shares as a retention bonus, the FTSE 250 gambling group’s shareholders will now be earnestly hoping that their company can buck that trend.
It is not always the way to bet. James Upton, assistant director of investment affairs at the Association of British Insurers, said: “Experience has shown that retention awards to main board directors rarely work. However, shareholders do consider each individual on a case by case basis.”
The list of such setbacks is long and undistinguished. Former WorldCom boss Bernie Ebbers, “the fifth-worst CEO in American history”, according to CNBC, trousered a $10m (£6m) “golden handcuffs” payment during the dotcom boom – ironically, as it turned out, because Ebbers is now serving a 25-year term at Oakdale Correctional Complex in Louisiana for fraud and conspiracy.
Meanwhile, Stephen Carter, the former boss of cable group NTL, quit his job at the end of December 2002 – which cynics ventured to suggest might have been motivated by the fact that he had to work through the whole of that year to earn a “retention” payment.
Elsewhere, one-time BT director François Barrault, who quit after his division was forced to make a £1.6bn writedown, kept a £554,000 retention award doled out just four months before walking out the door, while former easyJet boss Andy Harrison controversially banked a £1.2m retention bonus in 2009 that infuriated founder Sir Stelios Haji-Ioannouafter Harrison departed the budget airline in 2010.
All of which might be on the minds of William Hill investors as they consider Topping’s top-up pay. In one of the biggest shareholder revolts of the year, 38% of the bookmaker’s investors failed to back last year’s remuneration report.
This week chairman Gareth Davis was moved to comment: “These changes… reflect more closely Ralph’s unique individual experience and profile, and his criticality to the group” – which may have done more harm than good if the intention was to spin the unexpected payment to shareholders.
One corporate governance expert, who did not wish to be named, said: “The William Hill press release was pretty dreadful. It looked desperate and made it harder for shareholders to be supportive.”
The move by William Hill comes as rival Ladbrokes has also been rocked by a shareholder revolt; about 45% of its investors failed to back its remuneration report last month. They were angered by a £350,000 retention bonus awarded to Brian Wallace, the outgoing finance director, who was paid £1.58m last year. Wallace had received his bonus after he alerted the board that he was thinking of leaving, but as soon as it was paid, he walked.
Another investor said: “We’ve seen it so often: an executive gets a retention bonus and then they just bugger off. Even if they haven’t earned the payment at that point, the cost simply gets paid by the company he or she is defecting to.”
Such apparent paradoxes are far from uncommon. Last year Marks & Spencer hired Marc Bolland from Morrisons as its chief executive, agreeing to pay its new recruit £7.5m to cover the loss of future shares and bonuses at his old shop. Bolland’s arrival at M&S prompted Ian Dyson, the then M&S finance director, to quit to become boss of Punch Taverns. Punch then paid him a £2m “golden hello” as compensation for loss of M&S share options.
All of which can still be made to look like a model of moderation: last month Citigroup awarded its chief executive, Vikram Pandit, a $16.7m (£10.3m) retention bonus, plus stock options – a far cry from the public display of humility when he took $1 in salary during a period of the financial crisis.