Angela Ahrendts, former chief executive of Burberry, called her chief creative officer "one of this generation's greatest visionaries". We learned this week that Christopher Bailey, now her successor, was also the recipient last summer of one of this generation's greatest retention bonuses – a cool £15m.
The payment was quietly disclosed on page 104 of the fashion house's annual report. Bailey got 1m shares as an "exceptional" award last July when Burberry's share price, as now, was about £15. It was his second such "exceptional" award; he also got 350,000 shares in December 2010, worth about £4m at the time.
Cheap at the price, some Burberry investors may feel, if they have enjoyed the rise in the share price from 400p a decade ago and share Ahrendts's assessment of Bailey's talents.
OK, but aren't share-based awards worth many millions meant to be tied explicitly to future success via performance hurdles? In Bailey's case, his exceptional handouts merely required him to stay at Burberry "over three, four and five years from the date of grant".
Naturally, he also got a performance-related bundle when he succeeded Ahrendts last month. It amounted to 500,000 shares, worth £7.5m at current prices. In total, then, Bailey has had share awards worth £22.5m in the past year.
They pay themselves well at the top of the fashion world but, by the standards of a mid-ranking FTSE-100 firm (Burberry is worth £7bn), it's a lot. Bosses of titans such as Vodafone or GlaxoSmithKline would struggle to command awards of that size in such a short period.
The other oddity in Bailey's pay package is his £440,000 annual cash "allowance" in addition to his £1.1m salary. As mentioned here a few weeks ago, Burberry refuses to say what this "allowance" is for. It does not cover Bailey's clothes, cars or medical insurance – that much is spelled out. Instead, the pay report says the £440,000 was "agreed in his previous role, prior to his appointment as an executive director". That is not an explanation.
"I hope you find this report clear and comprehensive and I look forward to hearing your feedback," writes Ian Carter, head of the pay committee, in his introductory remarks.
Since you ask, Mr Carter, the answer is: no, some of this stuff is as clear as mud. Bailey, having arrived on the board after the end of the financial year, is not even included in the standard table listing directors' full interests in shares. Yet the note on page 104 reveals there are "a number" of share awards from past years "in addition" to the £15m and £4m. Why not just let investors see the full tally?
The point is not to gawp at Bailey's rewards, and wonder what else is yet to be disclosed. The real question for Burberry shareholders is whether the board, led by chairman Sir John Peace, has simply made an almighty bet on one man's genius.
Bailey is now both chief executive and chief creative officer, the two most important jobs at the company. He has been given £15m worth of freebie shares to encourage him to stay. And he gets a £440,000 annual allowance because he always has. Normal boardroom pay practices for FTSE-100 firms have been discarded.
Standard Chartered, where Peace is also chairman, suffered a 41% rebellion against its pay report last month. One top-10 fund manager said the bank's communication amounted to "making it up as they went along".
Before they vote on Burberry's report, investors should demand more transparency from Peace. Maybe there is a case for paying an "unconventional" chief executive – Bailey's own description – in an unconventional manner. But the argument has not been made in this annual report.
AA recovery
Here's one way to deal with choppy conditions in the flotation market: flog two-thirds of the company to nine institutions beforehand. AA's sale-cum-flotation is either a clever or a desperate tactic by the owners, the private equity firms CVC, Permira and Charterhouse.
The clever part is that they have avoided the risk of a flotation flop along the lines of Saga, the other firm that used to be housed under their Acromas banner. By accepting an offer of £930m for 67% of the AA, they have established a certain value.
The (possibly) desperate part lies in the fact that such certainty tends to require a discount. One suspects Aviva, BlackRock, GLG, Lansdowne and the other "cornerstone" investing institutions have done their homework. The AA is tricky to value because it is towing £3bn of debt. But it is a highly cash-generative business; it is the biggest operator in a market where size brings clear advantages; and profit margins on the main roadside assistance business were close to 50% at the trading level last year.
In other words, the AA's road to paying down that debt is long but visibility is excellent. The implied price tag of £1.38bn for 100% of the equity may turn out to be very good business for buyers who are prepared to commit for the long-term.
Bob Mackenzie, formerly of Green Flag and National Car Parks, is leading the new management team that took the deal to the institutions and found £930m of support. He has shown sharp manoeuvring skills on this deal.
If the IMF is worried…
The International Monetary Fund is (or used to be) zealously opposed to almost any form of capital control. So, when it argues for greater restrictions on mortgages to confront the risks of a dangerous housing bubble in London and the south-east, it is probably wise to listen.
A few banks are already tightening lending criteria. Lloyds, for example, said last month that it would limit mortgage lending to four times income for loans worth more than £500,000. But, rather than rely on banks to apply common sense, the Bank of England's financial policy committee should define what it regards as safe lending in a post-frenzy climate. And it should do so at this month's meeting.
As for Help to Buy, George Osborne's much-maligned scheme, it is probably not the greatest culprit. The data suggests very few homes in London are being bought with the help of government guarantees. But perceptions matter and Help to Buy may be encouraging the foolish thought among stretched borrowers that London houses are always a one-way bet. As a first step, cut the maximum value of qualifying houses from £600,000 to £300,000; then phase out Help to Buy altogether.
Free shares won't turn TSB staff into partners
It is a shame TSB over-egged its new pay policy by claiming to have "taken inspiration" from John Lewis by making its staff "partners". The terminology doesn't work. Staff at John Lewis are partners because John Lewis isn employee-owned partnership. TSB after separation from Lloyds, will be owned by shareholders and gifting the staff £100 of shares does not make them partners.
Never mind, the analogy is better for its all-employee annual bonus scheme. Here recipients – "from CEO to frontline branch staff" – will receive the same percentage of salary as an annual cash bonus. Yes, that is roughly how John Lewis does things.
Inevitably, TSB executives, led by chief executive Paul Pester, will enjoy a separate bonus scheme on top, which is not John Lewis-like. But the sums are a step down from normal banking fare (Pester's all-in maximum earnings would be £1.687m) and TSB says bonuses will be tied to levels of customer service, rather than flogging financial products. Details will be crucial, but TSB's approach looks promising.
