Many column inches were dedicated to the news that Angela Ahrendts, Chief Executive of Burberry, is quitting to join Apple next year. It’s got us reflecting on where is the real story here, especially from a governance perspective.
The Burberry chief was prominent in the news earlier this year because our Total Remuneration Survey identified her as the highest paid CEO in the FTSE100 as at June 2013. This was significant for two reasons. One, it’s the latest evidence of the rise and rise of the luxury goods company to have its CEO top of the highest paid list. Secondly, it was hard not to notice the fact that she is female, in the context of much focus on the question of boardroom diversity and pay equality in recent times.
But was either point really significant at all? Let’s look at the facts.
In Total Remuneration terms, she was top of our list in June because of the reported figures from the March year end in 2012 with total received pay of over £16m.With the latest March 2013 year end figures, Ahrendts total received pay was £5.3m, putting her in 22nd place in the FTSE100. As this shows, total pay received can vary hugely from one year to the next (normally due to the vesting and exercising of long term incentive awards and options). However, it is fair to say that her salary of £1.02m is in the top 25% of blue-chip bosses and for personal goods sector companies of comparable market cap, certainly higher than the company’s lower-middling market cap position in those same comparator groups.
It is often claimed that multinational companies are competing internationally for executive talent, and that therefore pay comparisons should transcend borders (leading to a further ratcheting of quantum, say the critics). This instance may in fact be seized on by both sides in this debate – a comparatively highly-paid American CEO re-locating back to a company in the US, being replaced by home-grown UK talent.
Yet it seems academic to focus on Ahrendt’s Burberry pay in a story about her leaving – she’s relinquishing that pay after all. Will we know what she’ll be earning at Apple? No. As senior vice-president for retail and online stores at Apple, it’s unlikely her pay will be publicly disclosed or a matter for shareholder voting as it has been at Burberry. So there’s not much story to be had there either.
In terms of diversity markers, Burberry has long been of some interest. Ahrendts replaced a previous female CEO and is one of only three current FTSE100 female chiefs. Also in naming Christopher Bailey as Ahrendt’s successor, Burberry will have the first openly gay FTSE100 boss, as well as one of the youngest. Ignoring the diversity flim-flam (does gender or lifestyle choice really affect your performance as CEO?), Christopher Bailey’s experience in having been creative director at Burberry since 2001 makes him very well positioned to maintain a steady direction for the company. If he performs as well as his predecessor, Burberry will have provided further proof to the “stale, pale and male” crowd that if you’re good enough you’re, well, good enough!
Perhaps the biggest governance question is arguably the remuneration arrangements going forward. There’s no formal vote on remuneration again until the next AGM in summer 2014, by which time the terms and conditions of Bailey’s appointment – including his pay – will be well established. To what degree might shareholders be consulted, or to what degree might shareholders make contact with the company, to discuss proposed remuneration arrangements for Mr Bailey? It is often pointed out that a new CEO by definition does not have the same level of experience or track record with the company to justify the same pay as their predecessor (even if they are appointed from within). CEO change is therefore a risk-point in terms of pay escalation about which shareholders should be vigilant – it’s their chance to set their stall out.
In conclusion, the most pertinent governance question will be answered in 2014 when shareholders get to study vote on Bailey’s pay at the AGM. But until then, we won’t know how big the slice will be.
Last Updated: 1 November 2013