EDITORIAL: Not such a good business journey for Ian Moir
For a company that misses no opportunity to boast about its “good business journey” credentials, Woolworths has demonstrated a remarkably cavalier attitude to the reputational damage caused by its “bad business” remuneration policy.
Sustainability is about more than plastic bags and responsible sourcing. It is about protecting and enhancing social capital.
For the past three years Woolworths has chiselled away at its hard-fought reputation for caring about sustainability as each successive reporting period revealed another unstintingly generous remuneration package for CEO Ian Moir.
Surely the much more sustainable approach would have been to pay him encouragingly well in the initial stages but hold back on the extreme generosity until there was evidence of long-term success.
By almost any measure it is undeserved and Woolworths stakeholders know that. Each inappropriate pay award chips away at the trust that underpins the social capital needed for the sustainability of our socioeconomic environment.
It’s not just about the cumulative R191m paid to him since 2015, as revealed in the single-figure remuneration chart provided in the annual report. Moir was granted no incentive awards in the three years to June 2019; not unreasonable given the fall-off in profits and the cumulative R13bn (per the 2019 annual report) write-off on the David Jones business in Australia, which was bought in 2014 for R21.5bn.
However, buried in the text far from the single-figure chart, are details of generous share awards made to Moir in each of the last three years — worth R27m in 2017 and R28.5m in each of 2018 and 2019.
The company says these awards are not included in the “single figure” chart because they have a three-year vesting period and there are performance conditions attached to their allocation. It might indeed be that Moir does not get the full allocation but, given how executive remuneration works, there’s a good chance he will.
So it’s not just about the single remuneration figure. Moir looks set to walk off with about 2-million Woolworths shares when his contract expires in 2021.
Whether he stays until then will largely be determined by his success in turning around David Jones. He has told journalists he is determined to sort out the problems and has convinced the board, for now, that he is the man for the job. The board may feel that at this stage of the game, and with few obvious options, Moir, who drove the Australian acquisition, is best placed to sort out the multibillion-rand disaster.
Word is he is making progress and this should become evident within the financial year. But whether any substantial progress is made and whether Moir sees out his contract the chances are, because that’s how things work in executive remuneration, he will depart with an enormously valuable package of share awards.
Of course if the Australian deal had worked and the operations were pumping out huge dividends to Woolworths’s shareholders, Moir and his board would be heroes and there might be less indignation about his pay. But, at least for now, the Australian deal has not worked. It’s not just the huge write-offs and the hefty levels of debt incurred, for a critical few years management took its eye off the SA ball.
So, all in all it’s extremely difficult to understand why the board thinks it’s appropriate to pay Moir as though he has been a hugely successful CEO. Surely the much more sustainable approach would have been to pay him encouragingly well in the initial stages but hold back on the extreme generosity until there was evidence of long-term success. Who, other than corporate executives of listed companies, gets paid so generously on the vague promise of outstanding performance?
Amazingly, rather than exhibit even modest levels of discomfort about remuneration, the board has decided a 30% increase in the chairman’s fees and a 20% hike for the lead independent director is also appropriate.
The retailer’s annual report explains there was no increase in 2019 but there were huge hikes in 2015 and more increases each year until 2019. And why the continued need for a lead independent director given that long-serving Simon Susman has been replaced by independent Hubert Brody? Ahead of any signs of effectiveness, it looks like an excuse for extra fees.
Of course even the board has lacked signs of sustainability in recent years. Not only was it complicit in the Australian wipeout but there appears to have been little sign of effective succession planning.
Surely this bad business journey cannot go on much longer.