How to Fail as a CEO and Get a ￡700,000 Bonus?
I have been reading about Debenhams collapse in the BBC news and my heart goes out to all the employees that are being fired. Many of them did their best for the store during many years of service and are probably are not leaving their jobs with much compensation. In June this year, hundreds of Debenhams' employees in Ireland's 11 stores protested about being made redundant without redundancy pay. Apparently, the company sent a generic email to staff informing them that they would not have jobs after the COVID19 crisis.
This prompted me to read about the recent history of the department store and it became clear that the dire troubles the company has experienced started years before the COVID-19 hit, with a series of poor executive decisions leading to this current outcome. It would be interesting to read a case study on the issue.
This brought to mind the ongoing disparity between the consequences of poor performance for most employees (including senior managers) compared with the consequences of failing at their job for top executives. Sergio Bucher, a former Debenhams CEO, is a case in point. When Bucher became Debenhams' new CEO in October 2016, he received an extremely generous remuneration package: "remuneration includes a basic salary of ￡700,000 and maximum bonuses equivalent to 350% of salary, or ￡2.45m, in his first year, which drops to 250% of salary in subsequent years. He is entitled to a cash bonus of up to ￡1.05m this year, which falls to ￡700,000 in the coming years. He will also receive a share bonus of ￡1.4m for 2016, and ￡1.05m in subsequent years.
Bucher is to receive a one-off cash payment of ￡445,184 to compensate him for losing bonuses at Amazon. In addition, Debenhams will pay annual pension contributions of ￡140,000 and benefits worth ￡18,375. For the first two years of his employment he will receive a housing allowance of ￡60,000 after tax and relocation expenses of up to ￡30,000 after tax." (Guardian, 26 May, 2016).
When, following continuously poor performance, he was forced to step down from his role in April 2019, not only did he not pay back any of these monies but he was awarded a ￡700,000 payoff, for 'his troubles'. This phenomenon, which repeats itself with various top executives, is unhealthy and is not going to go away on its own. Part of the problem is the increased tendency, especially in Anglo-Saxon countries, to go after charismatic leaders with a forceful personality that would impress analysts and investors (I encourage you to read Harvard's @Rakesh Khurana writing on this issue). It is the responsibility of company leaders, board members and public policy makers to act to diminish it.
#ethics #ceocompensation #leadership #governance