An incentive package that can be as high as £50m was signed off by the major shareholders of the fast growing UK based fashion retailing company Boohoo for its new chief executive in case the company is able to reach a growth of 180 per cent in the next 5 years.
John Lyttle was poached by the company from Primark where he was serving as the chief operating officer.
But this huge bonus is hard to justify, said the High Pay Centre which is an organization that monitors executive remuneration. It further said that similar scaled rewards for chief executives have come under criticism on earlier occasions such as undertaken by housebuilder Persimmon and gambling company GVC and for turnaround specialist Melrose.
The remuneration package that has been ordered stipulates that if and when the company – within a period of 5 years, Lyttle will be given a get £50m as reward over and above the annual salary and a bonus worth up to £1.5m.
Boohoo said that under the agreement, nothing would be paid to Lyttle till the company attains an increase of market value by at least 60 per cent.
The shares of the company have already risen by 2 per cent to 173.45p on the news of the appointment of Lyttle.
“There has been widespread anger at executive pay awards that typically run to about £4m or £5m, so potential payments in the tens of millions are particularly controversial. Companies who have used similar pay structures in the past, including Persimmon, Melrose and HVC Holdings, have attracted a lot of criticism from policymakers and investors,” Luke Hildyard, a director of the High Pay Centre, said.
“There’s a lot of research that suggests huge pay awards don’t really incentivise or motivate executives; executives are not necessarily the most important drivers of company performance and the vast differences in pay between business leaders and their workers negatively affects organisational morale.”
The criticism and opposition by investors resulted in the reduction of bonus of Persimmon chief executive Jeff Fairburn to £75m from £100m. But even the reduced amount was called “unfathomable” by the then UK housing minister Dominic Raab.
Major shareholders of the Boohoo – which includes the largest investor, the South African financial services group Old Mutual, have agreed to the remuneration package, said a spokesperson for the company.
There has been a year-on-year increase of 50 per cent in the last three months ending May in the sale of the company which is listed on the junior Aim stock market. And since 2011, there has been a 24 fold increase in the sale of the company touching about £580m for the year ended in February. This astronomical growth has been driven by promotional deals using celebrities such as England and Tottenham Hotspur footballer Dele Alli.
(Adapted from TheGuardian.com)