Here’s the bit Sir Richard Branson didn’t mention in his open letter to Virgin employees a fortnight ago: the only possible route to the Treasury’s wallet involves almost a third of the 10,000 staff at the Virgin Atlantic losing their jobs.
The jobs decision hadn’t been taken at the time but Branson could still have foreshadowed an obvious threat. Government ministers were never going to throw £500m of taxpayers’ money, or some such sum, in Virgin Atlantic’s direction unless they could see a vaguely credible plan to cut costs. The airline, remember, was loss-making even before the pandemic.
As far it goes, the new boardroom thinking looks pragmatic. Unprofitable routes will be dropped, gas-guzzling and ancient 747s will be ditched and Gatwick will be abandoned as a base for the time being. It’s tough on staff but the entire airline industry is acting similarly.
The action plan, though, is very far from being a sufficient qualification for a bailout. The Treasury will not want to see Virgin Atlantic go bust, taking even more jobs with it, but, as Branson must know, the politics of a loan are appalling.
He’s a billionaire who lives in a tax haven and who has a liquid asset in the form of a $1.5bn stake in publicly traded Virgin Galactic; and the owner of the remaining 49% of Virgin Atlantic is Delta Air Lines, which can’t contribute because the US government doesn’t want a dime of its own bailout support to leak into foreign airlines.
To even get a hearing in the Treasury, Branson will now have to recapitalise Virgin Atlantic. That could mean injecting cash himself or finding new investors – and the capital will have to be genuinely at risk. Then he will have to pledge to forgo the £20m a year that Virgin Group is currently paid in brand fees, and persuade Delta to do similarly with its IT charge. He will then have to commit to financial transparency and, probably, offer an equity slice to the state.
Its impossible to know if he’s both willing and able to meet those demands, but they seem the minimum requirement for Treasury even to contemplate a loan or guarantee – and probably for a sum much smaller than the fantastical £500m. The process is harder than writing self-serving letters, but what did Branson expect?
Ocado investors are right to make a fuss over executive bonuses
Ocado these days is worth £12bn, equivalent to the combined stock market values of Sainsbury’s, Morrisons and Marks & Spencer, which represents an astonishing shift in power in the food retailing industry.
The big money in the food retail business, it turns out, lies not in selling groceries to shoppers, but in selling robots and clever delivery technology to grocers. Ocado’s seven licensing deals with overseas retailers have transformed its prospects, and the pandemic has accelerated a process that was happening anyway.
And, since the Ocado co-founder and chief executive, Tim Steiner, still owns 29m shares, his 4.2% stake is worth roughly £500m. Which raises the obvious question: why on the earth, back in 2014, did he require a side order of 4m freebie shares to encourage him to turn up for work?
Those shares were the largest part of a “growth incentive plan” (GIP) that seems to have been created for no other reason than the management fancied a potentially juicer jackpot than could be generated by the regular long-term plan (which, naturally, they kept as well).
The sole performance condition was to get the share price to improve faster than the FTSE 100 index over a five-year period, which was achieved in spades. Last May Steiner’s 4m GIP shares were worth £54m and the company bought him out for cash. Three other directors shared almost £34m.
Wednesday’s vote on Ocado’s remuneration report, which describes the final tallies, therefore comes long after the ship has sailed. Rebellion, one might say, is pointless, especially as 2014’s shareholders approved the GIP at launch with the usual Putin-like majority of 83%.
But, actually, it’s still important that today’s Ocado investors make a fuss. Steiner’s £54m payday is not as ludicrous as the £75m that the housebuilder Persimmon showered on Jeff Fairburn, but the common element is the lack of a cap on the size of the reward.
Such structures, fund managers keep telling us, are no longer acceptable. If they mean it, they should give a thumbs-down to Ocado’s pay report. Steiner has created a brilliant business, but his GIP should never been proposed or approved.