Retail sales may be at their lowest for three years, but the industry’s top executives are, as yet, not lighter in the wallet for it. Quite the opposite, in fact. During the past financial year, pay rises continued to outstrip inflation as salaries and bonuses rocketed.
In the annual Retail Week salary survey, run this year in conjunction with executive recruitment agency Green Park, the number of respondents earning a basic between £150,000 and £199,000 rose from 19 per cent last year to 27 per cent. And, perhaps even more significantly, the trend for awarding large bonuses continued. Nearly a quarter of respondents received a lump sum between 21 and 40 per cent of their salary.
The sector is gradually losing its image of being one of the lowest paid for senior executives, helped by media reports of the earning power of those at the helm of some of the biggest, best-performing organisations. Earlier this month, it emerged that Sainsbury’s chief executive Justin King collecdt a bonus of about £6.5 million after the retailer unveiled a 25 per cent uplift in pre-tax profits. Meanwhile, it was revealed that Morrison’s chief executive Marc Bolland received a £706,000 bonus last year – about 100 per cent of his salary – after leading the impressive turnaround at the grocer.
But, as every week goes by, the retail market gets tougher. And the big question is, well these hefty remunerations continue?
The likes of King and Bolland are worth their weight in gold if you look at the financial performance of their businesses. Retailers are keener than ever to retain and recruit the most talented directors and if that means digging deep to find the requisite cash for basic salaries, so be it. As Green Park director Steve Baggi says: “The best people will be looked after very well.”
Robin Lewis, former New Look HR director and new consultant at Robin Lewis Human Resources, says: “Salaries are justified for those who delivered increased performance,” But on a sector-wide level, he believes it is unlikely that retailers will perform well enough for remuneration increases to continue on this scale.
Baggi predicts that, while many people’s basic salary might continue to increase over the next 12 months as retailers bid to keep the top performers, the sector can expect bonuses to take a hit unless their business can outperform a very tough market. The news two weeks ago that Marks & Spencer director’s bonuses had been cut after a failure to meet profit targets would certainly reflect that. Although store teams were awarded a share of £12.8 million, senior managers missed out.
Over the past year, one of the biggest changes in terms of the structure of compensation is the way in which the private equity world has influenced PLC’s. The mindset among top executives has changed. The private equity risk-and-reward mentality, where pay is heavily linked to the performance of the business, has made millionaires out of many a senior retail chief executive and the entire sector is now clamouring for similar remuneration packages.
45 per cent of respondents said they believed private equity ownership has contributed to an increase in people’s take-home pay through the entire sector, while 78 per cent said they felt incentives have been driven up as a result. As Baggi says: “PLCs have had to change their remuneration to protect people from being tempted by that environment. People are now tied much more to performance.”
A Picture of Wealth
Survey respondents attached the greatest importance to an equity stake – 78 per cent said this would encourage them to stay with their present organisation. Meanwhile, 61 per cent said that a personal performance bonus, rather than one linked to overall company performances, would also bolster retention rates. The third most popular choice was a cash-based long-term incentive plan.
From a business perspective, determining pay by overall performance is positive because everyone’s agenda is aligned and it can clearly pay off if sales are strong. Pets at Home chief executive Matt Davies says: “In a business that’s performing well, given the equity opportunities available, it makes sense to tie (executives) into the business. It’s about trying to get people to think of themselves as owners of the business so they can’t decide to go off and do something on a whim.”
But there is a potential problem with favouring such a remuneration structure. Many senior executives may be expecting too much – reflected, perhaps, in the fact that 34 per cent are dissatisfied with their overall remuneration. As Bagge says: “It’s a risk-and-reward mentality, but many people have forgotten about the risk. They want the comfort factor and the extra bits added on as well.”
So, although many senior executives prize being tied to the performance of their business, they may find it backfires on them if sales nosedive over the coming months. It will then be more vital than ever for businesses to keep hold of their top talent; and yet only 52 per cent of interviewees indicated their organisation had a dedicated retention strategy, while a third of respondents said their business finds it difficult to attract talent. And, as Bauger head of HR Nadine Jones points out: “Mediocre talent becomes more evident during difficult economic conditions.”
The good news for some retailers – particularly smaller companies that may find it impossible to compete with the salary packages that can be offered by the biggest high street retailers – is that remuneration is not the be-all and end-all when is comes to retention. An inability to pay top-dollar over the next 12 months is not necessarily a disaster. Lewis says that, although people do focus on financial reward, overall job satisfaction can often play a bigger part. “It’s about the total employment proposition – and a big part of that is leadership, identifying with the culture of the business and career challenges,” he says.
Likewise, Davies says: “When you ask an employer what they think is most important to employees, they will say pay is number one. If you ask a colleague, pay ranks below number 10. For them, factors such as leadership and communication are far more important.”
Figleaves chief executive Julia Reynolds agrees. “It’s not solely about money and benefits. We believe people want a better quality of life and a better work-life balance – and this includes being empowered, listened to, being given the ability to add real value to a business and being recognised for your contribution,” she says. “People want to be part of a successful, going-places team and this in turn develops into a financially rewarding environment, which completes the circle.”
Cheques and Balances
Red 5 founder Jonathan Elvidge says that, if the company culture and opportunity is right, even smaller companies such as his can manage to hold on to senior management, despite the promise of bigger rewards elsewhere. “With us it’s not money that’s motivating,” says Elvidge. “All the people here could find a better-paid job elsewhere, but then they don’t necessarily what to become payrolled into a big machine. What motivates people is that the team is growing and they can make a difference.”
If that all-important total employment proposition is good and yet sales are down, many senior managers will be happy to wait until the performance of the business picks up, rather than jumping at the first opportunity at a more successful operation. Mark Smith, managing director of Claire’s Accessories’ European operation, says: “If it’s tough for everyone, where are you going to go? If one sector’s not doing great, then you’ve got some options, but when the whole of retail is affected, you haven’t got so many.”
All the same, in these times of smaller bonuses, redundancies and administrations, retailers will have to work at ensuring staff morale doesn’t take a battering. Providing you have a sound business model and you invest in the basics, your senior team will usually appreciate that not every year can be a stellar one.
Source: Retail Week 30/05/2008