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Performance Related Pay – Does it work? It Depends

Evidence from Compass-Capita-Comparison shows performance related pay can work – when measured over the long term.

Since 2009, Compass has paid Richard Cousins, its CEO, £43m and Capita paid CEO Andy Parker £15m. According to my rough sums (which ignore the impact of the numbers of shares in issue and dividends and capital distributions), Compass added value of £19bn and Capita lost £1.2bn. They started at similar size £6bn and £5bn respectively.

The FT story Richard Cousins steps down as Compass chief executive noted:
During Mr Cousins’ time at Compass, the group has returned a total of £9bn to shareholders in dividends and buybacks. The group’s total return to shareholders from January 1 2006 to before the shares opened for trading on Thursday morning was 940.3 per cent, against 107 per cent for the FTSE All-Share index, according to Factset data. He has been paid well for his success, with total remuneration of just over £43m since 2009, according to Compass’ latest annual report.

Capita has not been so successful (!) and its CEO left earlier this year, so I thought I should do a comparison of their pay. Manifest provided this information:

Capita and Compass CEO remuneration and share price:

Capita plc
Year end Total Remuneration Awarded Single Figure Share price Ord dividend Basic EPS
2016 1,848,195 682,958 5.31 0.317 0.0555
2015 2,216,572 2,687,264 12.08 0.317 0.0796
2014 2,729,243 2,413,247 10.81 0.292 0.3579
2013 2,182,218 2,208,562 10.38 0.265 0.2705
2012 1,452,080 2,038,233 7.55 0.235 0.3708
2011 4,644,885 1,833,308 6.285 0.214 0.3916
2010 2,243,268 1,399,675 6.965 0.2 0.3844
2009 2,311,091 1,621,793 7.51 0.168 0.3076
Total 19,627,552 14,885,040  

 

Compass Group plc
Year end Total Remuneration Awarded Single Figure Share price Ord dividend Basic EPS
2016 4,666,453 5,822,000 14.95 0.317 0.604
2015 5,707,668 5,325,000 10.53 0.294 0.523
2014 4,508,520 6,298,000 9.965 0.265 0.49
2013 4,497,778 5,532,000 8.5 0.24 0.235
2012 3,767,396 4,867,000 6.835 0.213 0.321
2011 3,486,637 4,410,000 5.21 0.193 0.385
2010 3,535,887 5,614,000 5.305 0.175 0.36
2009 3,161,738 5,268,000 3.823 0.132 0.295
Total 33,332,077 43,136,000  

All figures in GBP
Source: Manifest Information Services,

Conclusion: Modern CEO pay packages reward successful CEOs. A large part of remuneration is linked to the share price, so performance gets rewarded over the long term. There is much talk and criticism of directors’ remuneration packages, but often this is ill-informed and as this example shows, the statutory disclosures don’t always tell the full story. Importantly, the Single Figure data in this illustration is less than the Total Remuneration Awarded (i.e. Fair Value or expected value) for the underperforming Capita, but much higher for the successful Compass. Nevertheless, the definition of the Single Figure can be improved as I have stated elsewhere , but that is another story for another day.

Whether Mr Cousins’ £43m is unnecessarily high is a more difficult question, but for those who enjoyed the 940% returns, £43m for £19 bn of shareholder value might seem a small price to pay. The £15m to Mr Parker does however seem too high!

This is an interesting example which might provoke some comment and debate.

The www.sharesoc.org/ShareSoc-Remuneration-Guidelines.pdf describe the ShareSoc recommendations on what remuneration is OK.

Cliff Weight

One comment
  1. marben100 says:

    My personal thoughts on this issue are as follows:

    Whilst Mr Cousins undoubtedly deserves a good reward for excellent performance, it should be borne in mind that a business like Compass is far from being a “one man band” and though he undoubtedly made a valuable contribution to the success, he could not have done so without the diligent support of his management team and of the many 10s of thousands of Compass staff. Therefore the question, in cases like this, becomes: where a business is successful how should the fruits of that success be divided between shareholders, executives, middle management and staff? This is where we seem to have a big problem in the UK (and in the US), as over recent decades the upper layers of management (and shareholders) have been handsomely rewarded, whilst pay has stagnated at lower levels. This is unsustainable and is now leading to political instability, with populists offering simplistic and dangerous “solutions”, like Trump, Farage and Corbyn gaining support. We have seen this before in history and where it leads is truly frightening.

    Mark Bentley

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