Belfast Telegraph

M&S has learned nothing from crisis

By David Prosser

The £15m potential payday for Marc Bolland, the incoming boss of Marks & Spencer, may look puny compared to some of the packages that leading bankers enjoy, but there are some aspects of the deal that should worry us.

In particular, as the corporate governance group Pirc pointed out yesterday, the fact that M&S has seen fit to compensate Mr Bolland for loss of potential earnings from his previous job at the supermarket group Morrisons, makes a mockery of the idea of rewarding long-term performance.

Mr Bolland is receiving around £7.5m from M&S in lieu of bonuses and share options that he would have been in line for had he stayed at Morrisons until 2012. It is not alone in offering these types of payments, but this is not a trend shareholders should welcome.

After all, the whole point of incentive schemes that pay out over years is to encourage executives to hit targets over extended periods. If you know you can jump ship before hitting those targets and still get the big payday, then the logic of these deals is flawed.

M&S clearly wanted its man. And the retailer is keen to point out that while it is offering some pretty generous bonuses of its own should Mr Bolland's performance be up to scratch, his targets will be demanding. Fair enough. But having decided to pay its chief executive such generous compensation for his former role, M&S could hardly complain if another company pinched Mr Bolland with a package that pays up the benefits it promised him.

This shouldn't be read as singling out M&S for criticism (though the retailer ought to be ultra-sensitive to corporate governance concerns given its run-ins with shareholders in the past). As I say, plenty of other companies now feel obliged to behave in this way when recruiting senior staff.

But think about this practice in the context of banking. One reform now accepted in investment banking is that bonuses for senior executives should be paid out in company stock that can only be vested over an extended period, to discourage bankers from taking excessive short-term risk in search of a mega annual bonus.

What if, however, banks recruiting star traders take the M&S approach to hiring, compensating their new staff for bonuses foregone elsewhere? That would run counter to the aim of encouraging bankers to be more prudent and long-sighted — and encourage a potentially dangerous return to pre-crisis behaviour.

Belfast Telegraph