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Majority of investors reject pay deal for Royal Mail's chief executive Investor revolt over Royal Mail boss's pay deal is biggest for years
(about 4 hours later)
More than two-thirds of Royal Mail shareholders have voted in protest against the pay arrangements of the new chief executive of the privatised postal service. Royal Mail investors have staged one of the biggest pay revolts in UK corporate history, with nearly three-quarters refusing to support the remuneration package handed to its new chief executive.
Rico Back, a Switzerland-based executive who will commute to the UK in order to run Royal Mail, is being paid 17% more than his predecessor Moya Greene. Back will receive a basic salary of £640,000 – and will still receive the sum because Thursday’s vote, in which more than 70% of investors voted against, is only advisory. The postal service, privatised in a much-criticised process that began in 2013, handed Rico Back an annual deal worth up to £2.7m if he hits bonus targets, on top of a £6m “golden hello” for leaving the company’s European subsidiary.
The new Zurich-based boss was previously the chief executive of a subsidiary of Royal Mail and has also been given a £6m golden hello to renounce his former contract and take up the new job as group chief executive. Trade union bosses labelled the payouts unbelievable, warning that postal workers would be angry at seeing such lavish awards handed out just months after they accepted changes in their pensions to help the company save money.
Shareholder advisory firms ISS and Glass Lewis had both urged shareholders to vote against the pay deal at Royal Mail’s annual shareholder meeting in Sheffield – in part because Back is getting £100,000 a year more than outgoing boss Greene. Back, who is based in Switzerland and will commute from Zurich to London, will earn annual basic pay of £640,000, a 17% increase on predecessor Moya Greene.
Royal Mail defended Back’s salary level, saying it makes up for a lower cash pension allowance, and that his total fixed pay and benefits will be in line with Greene’s. Royal Mail said this was to make up for a lower pension allowance, which will be £112,000 compared with Greene’s £200,000, a sum the company admitted last year was too high.
But ISS pointed to part of Royal Mail’s pay policy in 2016, which said its remuneration committee “recognises that the pension provision is high” and that it would “adopt a lower percentage for newly appointed executive directors”. The company defended the arrangement by pointing to Back’s strong performance leading Royal Mail’s European subsidiary, GLS, but three-quarters of votes cast at its annual meeting in Sheffield failed to back his pay deal, while 70% actively opposed it.
ISS had also raised a red flag over Greene’s payouts, which include a full-year cash bonus of £774,000 and 12 months’ salary after she departs in September. The revolt is thought to be the largest at a UK public company in at least a decade, outstripping the 64% who failed to back a £75m payout for housebuilder Persimmon’s chief executive in April, and the 60% who rejected former WPP boss Sir Martin Sorrell’s £7m deal in 2012.
Royal Mail defended those payments, saying: “Moya Greene is an exceptional executive and we have made the right remuneration arrangements to reward the generation of shareholder value in the longer term and to honour our contractual obligations.” The shareholder vote is merely advisory and the company is under no obligation to change its pay arrangements.
Earlier this week, Royal Mail reported a 7% fall in letter revenues in the most recent three months, while UK parcel revenues rose 6%. Overall revenues in the UK division were down 1%, while overall group underlying revenues were up 2% thanks to an 11% surge in turnover at its European parcels business, General Logistics Systems (GLS) – the operation run by Back. “It would appear that Rico Back has got £6m moving from one job within the Royal Mail to another, a life-changing lottery win to anyone else, as well as an astronomical wage packet,” said Terry Pullinger, deputy general secretary of the Communication Workers Union.
The proxy votes declared at the AGM were 70.18% against the directors’ remuneration report with just 29.82% in favour. “These things have drifted away from reality and it’s got to the point where it’s unbelievable money.”
Orna Ni-Chionna, chair of the group’s remuneration committee, said: “We recognise and understand the reasons why our shareholders felt they could not vote in favour.” She said Royal Mail had “already been in contact with many of them and will reflect very carefully on their main concerns” at the next review of the company’s remuneration policy, which will take place in the autumn.” He pointed to a lengthy dispute with the company over working hours, pay and pensions that ended in February, when 110,000 workers – who the CWU said were paid an average £22,500 a year – accepted changes to their retirement benefits.
“The business is constantly telling us that every pound is a prisoner and they’re under the cosh and then you see this,” he said.
“So how can people believe the business is in difficult financial straits when that sort of money’s being bandied about?”
“Shareholders probably just want a bigger return themselves, so for them to react like that, I’d probably double that in terms of what our members would think.”
ISS and Glass Lewis, groups that advise City investors on how to cast their votes, had both urged shareholders to oppose the deal because of the increase in Back’s basic pay.
ISS had also raised a red flag over departure payouts for Greene, which include a full-year cash bonus of £774,000 and 12 months’ salary, worth £547,500, after she leaves in September.
Orna Ni-Chionna, chair of Royal Mail’s remuneration committee, said: “We recognise and understand the reasons why our shareholders felt they could not vote in favour.”
She said Royal Mail had “already been in contact with many of them and will reflect very carefully on their main concerns” at an autumn review of the company’s remuneration policy.
But Royal Mail’s chairman, Peter Long, who also chairs Countrywide and is vice-chairman of travel group Tui, defended Back’s pay package, pointing to his record as boss of GLS.
“GLS has truly been a great success story for us,” he said.
“We bought it when we were the Post Office back in 1999. That is also when our new CEO, Rico Back, came on board. Since then, under Rico’s dynamic and astute leadership, GLS has grown and grown.”
The company defended Greene’s payoff, saying she was “an exceptional executive and we have made the right remuneration arrangements to reward the generation of shareholder value in the longer term and to honour our contractual obligations.”
Earlier this week, Royal Mail reported a 7% fall in letter revenues in the most recent three months, while UK parcel revenues rose 6%. Overall revenues in the UK division were down 1%, while overall group underlying revenues were up 2% thanks to an 11% surge in turnover at GLS, run by Back.
Royal MailRoyal Mail
Executive pay and bonusesExecutive pay and bonuses
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