Boohoo plans to switch to a conventional executive pay policy after falls in its share price made lucrative schemes based on market capitalisation less likely to pay out.
The fast fashion group will ask investors to approve a long-term incentive plan for all executive directors for the coming year that would pay out a maximum of 200 per cent of basic salary, subject to a range of operational and financial criteria.
Previously, only finance director Neil Catto had been a beneficiary of a long-term incentive scheme. Chief executive John Lyttle and other senior managers, including co-founders Mahmud Kamani and Carol Kane, were subject to separate plans that would have paid out a total of £200mn if Boohoo’s market value reached certain levels.
The group’s 2022 annual report, released on Tuesday, stated that the proposed revisions to the incentive scheme “will act as a powerful retention tool as we face the reality that the growth share plan . . . and the management incentive plan may not vest at the levels originally hoped for”.
Boohoo’s market capitalisation on Tuesday was just over £1bn. It would have to reach roughly £3.3bn by June 2024 in order to trigger an award to Lyttle under the growth share plan, and to £5.6bn pay out the maximum £50mn.
The share price recovery required to generate payouts to other executives would be even more dramatic and even the most optimistic analysts’ share price targets are well short of those levels.
Awards under both schemes are also subject to the completion of the group’s “agenda for change” initiative — a series of improvements to pay and conditions in its supply chain — which has already been achieved.
Luke Hildyard, director at the High Pay Centre, said the use of the term “incentive” reflected an approach across the corporate sector of “giving executives enormous pay awards that are more or less guaranteed but contain a superficial link to performance”.
“If the CEO fails to achieve the targets in the so-called incentive plan, but gets a large pay award anyway, the award can’t really be considered an incentive,” he added.
Boohoo said that while it was theoretically possible for both the revised LTIP and existing incentive schemes to pay out, this would only happen if there had been “very significant shareholder value creation”.
It added that moving to a more conventional executive pay structure with a three-year vesting period ensured there were continued incentives beyond the end of the performance period, adding that it had “engaged extensively with shareholders” over the design.
The revised LTIP will be subject to a shareholder vote, in contrast to the schemes for Lyttle and others which were implemented without a vote and resulted in criticism from some investors.
Separately, the group’s remuneration committee opted to make bonus awards to senior directors over and above the amounts merited by financial and operational performance in the year to February 2022.
Iain McDonald, who chairs the committee, said it “reflected at length on the overall achievements during the year and decided that an out-turn of 25 per cent [of the maximum possible] would fail to reflect the tremendous progress made by management”.
Instead, Lyttle and Catto will receive 75 per cent of the maximum, taking their total remuneration to £1.39mn and £680,000 respectively.
“They are paying out more in bonus but are meaningfully increasing the share component that must be held for at least two years,” said one top-20 investor in the company.
The investor also noted that Kamani and Kane have declined to take a bonus despite being executive directors.