ANDREA FELSTED: Mike Ashley should abstain from votes on future son-in-law’s pay at AGM

If you own a large retailer and you’re trying to make your future son-in-law CEO, offering him a potential £100m bonus is probably not the best way to get other shareholders on board.

Yet that is what’s being proposed at Frasers Group.

The British owner of the Sports Direct and House of Fraser chains said earlier in August that Mike Ashley, founder and majority shareholder, was preparing to hand over the CEO role to 31-year-old Michael Murray, the man engaged to his daughter Anna. On Wednesday, Frasers said Murray could receive £100m worth of shares if he succeeded in raising the stock price to £15. The shares closed at 656.5 pence, up 1%, on Thursday.

When the succession arrangement was announced, I argued that Murray’s pay package should resemble that of any external appointment. The proposed large bonus doesn’t fit that bill. Murray’s remuneration should reward him for the value he delivers for all shareholders, not just Ashley. Although the incentive has the potential to enrich all investors, Ashley would be the biggest beneficiary. He has a 65% stake in Frasers.

The £15 target is certainly a stretch, and Murray has just more than three years to achieve it, whereas five years is a more usual time frame. If he assumes the CEO role — and his appointment has not yet been finalised — he would start in May 2022. The stock price would then have to be at £15 for 30 consecutive days before October 7 2025.

Frasers shares have never achieved this level before. The closest they came was at less than £10 — at 922p in April 2014.

Should they reach £15, Frasers’ market capitalisation would increase from £3.4bn to £7.7bn. Murray’s £100m bonus would be about 2% of the value created.

But how can minority investors be sure that the value creation is driven by Murray? Ashley, who built the business, will remain an executive director and his majority shareholding means he will continue to be in the driver’s seat. There’s also a risk that Frasers reaches the share price target due to factors outside Murray’s control, such as takeover interest. Just look at the bidding frenzy around UK supermarkets right now. The circumstances could make it hard to justify rewarding Murray so richly.

Frasers executives have typically had low base salaries, with the potential top-ups through big share-based incentives. But the same can’t be said for Murray: the group also proposed a £1m a year salary. Even if it deducts this from a £100m payout, his annual salary would still be more than that of Steve Rowe, the CEO of Marks & Spencer, a retailer with almost three times the sales of Frasers. (As CEO, Ashley does not receive a salary.) 

The proposed bonus for Murray will be put to shareholders at Frasers’ annual meeting in September. If it gets a frosty reception, it would not be the first time the company’s pay plans have run into trouble. Shareholders twice voted against Ashley sharing in a £200m employee and management bonus pool. They eventually approved it in 2014, only for him to pull out of the arrangement two weeks later.

It’s worth remembering that Frasers has led the way in rewarding employees throughout the organisation. In 2013, thousands of staff of Sports Direct, as the company was then known, shared £135m worth of shares. They received another £43m in 2017, and in 2020, Frasers put in place a new £100m reward programme, contingent on the share price reaching £10. It would be a shame to undermine this system with a controversy over outsize executive rewards.

Given Murray’s closeness to his family, Ashley should abstain from the votes on his pay at the annual meeting.

But perhaps the easiest way for Frasers to avoid a row with investors over this or any future arrangements would be for Ashley to buy out minority shareholders. I’ve long said that the group would be best run away from the glare of public markets. If Ashley wants to introduce private-equity-style remuneration, then he should have a private ownership structure too.

Bloomberg Opinion. More stories like this are available on bloomberg.com/opinion