Burberry's shareholders are up in arms over a multi-million dollar deal awarded to the brand's new CEO, Christopher Bailey. Following the departure of former Burberry CEO, Angela Ahrendts, to Apple this past Spring, Bailey, who still maintains his position as chief creative officer, which he has held since November 2009, was named CEO. Along with his new position (which came with criticism amongst shareholders stemming from the increased breadth of Bailey's role at the helm of one of Britain’s biggest retailers), Bailey was granted 500,000 shares in the company, worth up to $12.5 million "in consideration for the executive's appointment to the roll of chief executive." Bailey's contract allots for an annual pay package that amounts to nearly $2 million a year (10% of which Bailey, 42, plans to donate to The Burberry Foundation, a charity he launched with Ahrendts that supports projects targeted at disadvantaged youths), as well as a $755,000 cash allowance to cover clothing and other items and an annual bonus, which could be as much as twice his yearly salary.
The two contract figures that have raised red flags: the "golden hello" in Burberry shares, which are slated to begging vesting in 2015, and that $750k+ yearly cash allowance. The one-off award of 500,000 shares is understood to be subject to performance criteria and will be released between 2017 and 2019. Sources, such as the Guardian, stipulate that large one-time payments are "typically reserved for top executives arriving from other businesses, where their departure caused them to lose out on a performance payout."
According to an array of industry sources, a number of Burberry's largest shareholders are unhappy with Bailey's pay deal, and they are not the only ones. The Institutional Voting Information Service, which is part of the Investment Management Association (IMA), has given Burberry an "amber top" rating, its second highest level of scrutiny on corporate governance matters, for the British brand's executive pay arrangements. The IMA is said to have urged its members, who manage over £4.5 trillion of assets on behalf of UK and overseas clients, to scrutinize Bailey's payment plan before casting their votes at the company’s annual general meeting on Friday.
Moreover, Institutional Shareholder Services Inc., the US corporate governance adviser, and Pensions & Investment Research Consultants have also reportedly questioned elements of Bailey’s CEO-related remuneration. As a result, Burberry issued an "additional disclosure" note, also published ahead of Friday's shareholder meeting, commenting on Bailey's CEO award. According to the statement from the brand, the unusually high award was offered "as a means of providing [Bailey] with an increase to his fixed remuneration without increasing other elements of his remuneration […] For example, if the allowance had been provided as an increase to his salary, this would have substantially increased the value of his annual bonus share awards and pension allowance."
[An interesting side note, as shared by the Guardian: According to his recently signed contract for the CEO position, Bailey has reportedly enabled Burberry to use his name and image rights for publicity and marketing. "The executive shall make himself available to attend and participate in public events," the contact stipulates. Additionally, Bailey's contract makes clear that Burberry has agreed that "it will cooperate with the executive to … take reasonable measures to protect the name 'Christopher Bailey' as a trademark and within internet domain names to its expense"].
People close to the situation stressed that Mr Bailey’s remuneration was on a par with creative heads at other global luxury fashion groups, and that Burberry’s pay also reflected the performance of the company. However, other sources suggest (according to the Telegraph) that the $750k+ yearly cash allowance "is highly unusual for a FTSE 100 [a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization] chief executive."
Because the key points of Bailey's employment contract were not released to major shareholders until after the paperwork was signed just one day before Bailey started in his new role on May 1st, it will likely be the main topic of discussion at Friday's annual board meeting. More to come …