Thursday, 4 January 2018

Fat Cat Day - Ladbrokes special

Today is Fat Cat Day, the day on which the High Pay Centre calculates that the average FTSE100 CEO has "earned" as much as someone on average earnings gets in a year.

As we're focused on exec pay, I thought I'd contribute an update to a blog I wrote previously about the solemn and respectful tone that Ladbrokes has adopted in response to high shareholder votes against it over executive pay. We cannot fault Ladbrokes on its commitment to listen seriously to shareholder concerns... at the last three AGMs.

In 2017, in response to a large vote against its executive pay arrangements, Ladbrokes noted respectfully that:
more than 20% of votes cast were against the Directors' Remuneration report and have been advised by some shareholders that this vote against was in respect of the salary increase of Jim Mullen, the Chief Executive Officer, at the time of the merger with Gala Coral, which was undertaken to bring his salary in ratio to the salaries of other executives joining the Board as a result of the merger. This was widely briefed to major shareholders ahead of the increase, with only one major shareholder expressing concern and that was about phasing of the award rather than quantum. Jim Mullen has not received an increase in his salary in the current year. The Chairman and the Chair of the Remuneration Committee will seek to meet with any significant shareholders who voted against the report to further identify any other issues that arose.
This was of course a one-off, and should not be seen as indicative of a systemic problem with executive at this company or more widely. Plus points too for willingness to engage with shareholders.

And we should take the same view of its 2016 AGM, when, in response to a large vote against its executive pay arrangements, showing the greatest respect, Ladbrokes stated:
The Board notes the vote in respect of the Directors 'Remuneration Report. Ladbrokes understands the concerns expressed by some shareholders towards the termination arrangement with Ian Bull.  The Board is very aware of shareholder observations and these will play a key part in the Board's thinking as remuneration is considered for the business going forward and the potential merger with Coral.
This was also a (different kind of) one-off, and, once again the commitment to take "shareholder observations" into account was very welcome.

Certainly, no link should be drawn between the 2017 and 2016 AGMs and the 2015 AGM, when, in response to a large vote against its executive pay arrangements, with a respectful tone, Ladbrokes said:
The Board notes the vote in respect of the Directors Remuneration Report. Ladbrokes has spoken with several shareholders about the termination arrangements for Richard Glynn where his contract required that any settlement had to be determined in line with UK damages principles.  The Remuneration Committee confirms that contracts of this type are not appropriate and termination arrangements for the current executive team, including Jim Mullen who was appointed CEO on 1 April 2015, are determined on payment in lieu of notice (PILON) principles in line with best practice.  The Remuneration Committee further notes that Jim Mullen was appointed on a lower salary and shorter notice period than the previous CEO.
(And, of course, it would be churlish to link the 2017, 2016 and 2015 AGMs to the 2011 AGM, when Ladbrokes also received a large vote against its executive pay arrangements.)

I think we can all agree, that what matters here is not getting three large shareholder protest votes in a row, or managing to irritate investors in three different ways, or that shareholder let them get away with it, and certainly not the scale of the pay! But rather we should applaud the respectful and non-inflammatory tone adopted by the company, and its commitment to engage with shareholders. It is a shining example of the consensual and non-confrontational nature of UK corporate governance working at its best. A pat on the back to all those who made this happen!