Boohoo plans to switch to a conventional executive compensation policy after its share price slump made lucrative programs based on market capitalization less likely to pay off.
The fast fashion group will ask investors to approve a long-term incentive plan for all executive directors for the coming year, which would pay a maximum of 200% of base salary, subject to a series of operational and financial criteria.
Previously, only the financial director Neil Catto had benefited from a long-term incentive program. Chief executive John Lyttle and other senior executives, including co-founders Mahmud Kamani and Carol Kane, were subject to separate plans that would have paid out a total of £200million if Boohoo’s market value reached certain levels.
The group’s 2022 annual report, released on Tuesday, said the proposed revisions to the profit-sharing plan “will act as a powerful retention tool as we face the reality that the growth share plan . . . and the management’s incentive plan may not vest at levels initially expected.
Boohoo’s market capitalization stood at just over £1 billion on Tuesday. It is expected to reach approximately £3.3bn by June 2024 to trigger an award to Lyttle under the Growth Share Plan, and pay out £5.6bn to the maximum of £50m. pound sterling.
The share price rally needed to generate payouts to other executives would be even more dramatic and even the most optimistic analysts’ share price targets are well below these levels.
Rewards under both programs are also subject to the completion of the group’s “agenda for change” initiative – a series of improvements in wages and conditions in its supply chain – which has already been achieved.
Luke Hildyard, director of the High Pay Center, said the use of the term “incentive” reflected an approach in the corporate sector of “giving executives huge pay packages that are more or less guaranteed but contain a superficial connection to the performance”.
“If the CEO fails to meet the targets of the so-called incentive plan, but still gets a big salary reward, the reward can’t really be considered an incentive,” he said. added.
Boohoo said that while it was theoretically possible for the revised LTIP and existing incentive schemes to be paid out, this would only happen if there had been “very significant shareholder value creation”.
He added that the move to a more conventional executive compensation structure with a three-year vesting period ensured continued incentives beyond the end of the performance period, adding that he was “largely committed with the shareholders” on the design.
The revised LTIP will be subject to a shareholder vote, unlike plans by Lyttle and others that were implemented without a vote and drew criticism from some investors.
Separately, the group compensation committee has elected to award bonuses to senior executives in addition to amounts earned by financial and operational performance in the year ending February 2022.
Iain McDonald, who chairs the committee, said he “has thought long and hard about the overall achievements of the year and has decided that a result of 25% [of the maximum possible] would not reflect the tremendous progress made by management.
Instead, Lyttle and Catto will receive 75% of the maximum, bringing their total compensation to £1.39million and £680,000 respectively.
“They pay out more bonuses but significantly increase the portion of shares that must be held for at least two years,” said one of the company’s top 20 investors.
The investor also noted that Kamani and Kane refused to take a bonus despite being executive directors.