Shareholders in BT may be under the impression their company had a lousy time last year. Investors did. BT’s share price fell by a third in a rising stock market and sits at its lowest level since 2012. The dividend was merely held, making a nonsense of the chief executive Gavin Patterson’s confidence a couple of years ago that double-digit increases were in prospect. Staff, too, may be less than cheerful. Some 13,000 are about to lose their jobs as Patterson confronts the fact that BT’s revenues are falling again.
But, no, it turns out that 2017-18 was a triumph, at least in the boardroom. The victory wasn’t the maximum possible under the terms of the executive bonus scheme but the outcome was “above target”, says the annual report. Even Patterson seems to have sensed that finding looks perverse because he volunteered for an “at target” score, meaning his bonus was £1.3m not the £1.6m that the mechanical formula said it should be.
Come on, though, awarding a £1m-plus bonus in these circumstances to a boss on a guaranteed basic whack of £997,000 is ridiculous. The pay formula may record BT performing wonders on cash flow and “customer experience” but, when the share price has more than halved in two years, a remuneration committee chaired by the former BSkyB boss Tony Ball should be asking whether it is measuring the right things.
A further prompt should have come from BT’s three-year incentive scheme, which paid out nothing and thus gave a reading closer to shareholders’ misery. BT was 20th out of 23 in a league table of peers judged by shareholder returns, missed its cash-flow target by £1.7bn and was miles off on revenues. This disconnect between the three-year scheme and the single-year bonus plan seems to have escaped Ball’s committee.
BT’s defence is that the pay structure was approved last year with a majority of 96%. Well, yes, companies always say that. None dares to submit a proposal that would require them to apply some common sense when the bonus model spits out a silly figure that doesn’t fit the facts on the ground. Lloyds saw a 20% revolt against its pay report on Thursday. The numbers are smaller at BT but the decision-making process looks worse.
CMA must establish Heathrow facts
The Competition and Markets Authority may have the audit market on its mind (after Carillion, it should) but here’s another inquiry worth doing – and more urgently. Heathrow Hub, which is the lower-cost scheme that would expand the airport by extending the existing northern runway, wants the CMA to investigate whether the owners of Heathrow have unfairly favoured their own more expensive £14bn plan to build a third runway.
It is a pressing subject for two reasons. First, MPs are due to vote on Heathrow’s expansion in the summer. Second, the transport secretary, Chris Grayling, made an alarming statement at a select committee hearing in February that should have caused a bigger fuss.
Grayling, who favours Heathrow’s proposal, said: “I have to say that the extended runway proposal is a very innovative one. At the end of the day … the biggest issue for us was that the promoters of that scheme could not secure from Heathrow a written guarantee that if we picked it they would do it. That seemed to be a fairly fundamental problem for us.”
One can understand Grayling’s desire to be pragmatic. If the parliament votes for more capacity at Heathrow, it has to be confident the work will be done. But surely the first question is: which scheme is fundamentally better?
The Airports Commission in 2015 opted for Heathrow’s third runway, calling the Hub idea “imaginative” and “viable” but “less attractive from a noise perspective” among other factors. Since then a furious debate has raged about whether the commission got the correct data on noise and safety, and made fair comparisons on capacity. That’s one for the technical experts but there is sufficient uncertainty for Grayling to switch sides credibly if he so wishes.
That is why the Hub’s claim that Heathrow “abused its dominant market position” by, in effect, vetoing a rival’s cheaper and quicker proposal is serious. Heathrow denies the allegation but it would remove all suspicion if its owners – an international consortium led by Spanish group Ferrovial and the Qatar Investment Authority – committed to build whatever scheme parliament approves and survives the likely judicial reviews. That guarantee ought to be easy to give. The CMA should establish the facts. This air around Heathrow is bad enough without this lingering row.
