Here, as sure as spring, comes another row over pay at Shell. Chief executive Ben van Beurden collected €20.1m (£17.2m) last year, a tidy 126% increase on 2017. The only other time he passed €20m was 2014, when he apparently needed an enormous pension top-up and “tax equalisation” handout to ease his arduous journey from London to Shell HQ in The Hague. For practical purposes, he is setting pay records for a Shell boss.
No doubt he’s doing a great job, as shareholders would see things. Just in case, remuneration chair Gerard Kleisterlee littered his report with references to the vast sums the company generates these days – an astonishing £40bn of cash from operations last year. And, yes, we can agree the takeover of gas producer BG Group in late 2015 turned out not to be the overpriced stinker it seemed at the time. Energy prices recovered, easing the strain on Van Beurden’s acquisition arithmetic.
But therein lies a factor in his bonanza – the oil price. About 80% of Van Beurden’s winnings came from a three-year incentive scheme that used shares granted at early 2016 prices, when oil cost close to $35 a barrel. By the end of the performance period, December 2018, oil was nearer $60. The beneficial effect on Shell’s share price, and thus on the value of Van Beurden’s share-based rewards, is obvious.
That’s the madness of these incentive plans. The oil price is outside the control of the executives yet is a major influence on pay packages that are defended as “performance-related.” It’s true Shell had to beat a few competitors on a few yardsticks, but once those hurdles were cleared the arbitrary factor kicked in.
Some £2.7m of Van Beurden’s jackpot came from a higher share price and another £2.6m from dividends, themselves semi-determined by oil prices. Maybe luck will swing the other way next time. But, if you hang around long enough at the top of a large oil company, you are almost guaranteed a big win at some point.
Pay committees ignore the issue. In Shell’s case, they also overlook the candid admission of former chief executive Jeroen van der Veer, who himself walked into a few pay rows . “If I had been paid 50% more, I would not have done the job better,” he said. “If I had been paid 50% less then I would not have done it worse.”
Well, quite. Van Beurden’s pay for 2018 equates to about £47,000 a day. If the figure had been, say, a mere £27,000 a day, one can be reasonably sure the outcome for Shell shareholders would have been exactly the same.
The hedge fund hounds are coming for Interserve
Is Interserve going in and out of administration on Friday? That was the betting on Thursday night. An administrator from EY is lined up and Interserve’s lenders stand ready to take control via a pre-pack arrangement.
Over at the Cabinet Office, feelings may be mixed. The good news is that a Carillion-style calamity should be avoided and, in theory, all 45,000 jobs in the UK should be protected. And angry 27% shareholder Coltrane’s hopes of bidding for bits of Interserve look remote, which ministers will surely cheer. Coltrane, a New York hedge fund, made about £4m by betting on Carillion’s demise. It might be hard to explain to voters why it deserves to run government contracts.
On the other hand, the prospective new owners of Interserve – its lenders – aren’t an entirely pretty bunch. They include an alternative crew of hedge funds, including Cerberus, named after the three-headed hound of Hades. As you might suspect, Cerberus is not noted for its commitment to cuddly inclusive capitalism.
But, yes, the hedge fund hounds could soon be significant part-owners of a company supplying school meals, cleaning hospitals and servicing the armed forces. Isn’t outsourcing wonderful?
Second-chance Dunkerton is a man with a plan
Let’s give Julian Dunkerton some credit. If, against the odds, he gets himself voted back on to the board of Superdry, the company he founded, he will arrive with a plan. He is not simply howling in horror at the state of the share price.
The plan, naturally, would reverse many of the initiatives launched by chief executive Euan Sutherland. Dunkerton would kill the planned kidswear range on the grounds that Superdry’s core teenagers and twentysomethings won’t wear the same kit as small children. He would move some production from China to Turkey to shorten supply times. He would review the US rollout strategy.
Dunkerton will probably lose the vote because the City seems to have made up its mind already. But his points deserve answers. Sutherland should cut the insults and give a reasoned response.