It was “an honour” to become chief executive of Smith & Nephew, “a company I greatly admire”, gushed Namal Nawana when he got the job last year. What he failed to mention, it turns out, is that these warm feelings were dependent on the willingness of his new employer to whack up his pay at the first opportunity. Eighteen months later, Nawana has quit because a package of up to $7m (£5.4m) a year doesn’t meet his lofty expectations.
Technically, his departure is a “by mutual agreement” affair, but the language need not detain us long. Nawana seems to have looked at what bosses in charge of similarly-sized US healthcare companies can earn – around the $15m mark – and asked for the same. When the board said no, and pointed out that UK shareholders would never wear it, Nawana declared that maybe he wouldn’t hang around. Cue an inevitable invitation to pack his bags sharpish. One can call that outcome mutually agreed, but there’s no doubt about who instigated the quarrel.
Did Nawana, an Australian who had previously worked in the US, not notice that Smith & Nephew is a UK company that pays according to UK notions of acceptable avarice? Actually, he must have realised because he made a point in interviews of mentioning how he had taken a pay cut to join.
Or perhaps he thought Smith & Nephew itself would be heading to the US via a relisting, with a remuneration rethink to follow along local lines. A corporate switch has been rumoured but Nawana would have been unwise to bet on it happening. Even mighty Unilever couldn’t persuade its shareholders to accept a re-domicile to the Netherlands.
One is left to assume that Nawana, after injecting some life into Smith & Nephew’s share price, had gambled that he could bounce the board. If so, chairman Roberto Quarta (perhaps bruised by his annual showdowns over pay at WPP in the Sir Martin Sorrell era) deserves some credit for standing firm. Nawana was on a base salary of $1.5m, with the chance to earn an estimated annual maximum of about $7m for hitting targets. If that’s not sufficient motivation to get out of bed in the morning, don’t take the job in the first place.
How corporate types fail to anticipate the bleedin’ obvious
Still on remuneration matters, it’s farewell to Marion Sears, chair of the pay committee at Persimmon, the housebuilder that caused uproar when it shovelled a £75m bonus in the direction of chief executive Jeff Fairburn, now thankfully departed.
Sears’ role in the Fairburn fiasco was actually minor. She didn’t design the idiotic uncapped incentive scheme and, by the time she became chair of the remuneration committee in December 2017, the damage had been done. She was, though, obliged to appear in front of MPs on the business select committee in June last year to try to defend the bonanza and, in that capacity, she provided a textbook example of how not to prepare for a session in front of MPs.
Fairburn himself would probably have bet his bonus on this question cropping up: what’s the average pay at Persimmon? Sears didn’t know or, rather, hadn’t looked up the figure in advance. Cue incredulity on the part of MPs and an easy clip for the evening TV news to confirm the impression of directors living in a bubble.
It’s astonishing how often corporate types fail to anticipate the bleedin’ obvious. Peter Fankhauser, the man on the bridge when Thomas Cook sank, flapped ineffectually last week when asked if he would be paying back any of his bonuses.
Brexit
“There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer,” said the chief executive, Peter Fankhauser, in May. But it cannot be the whole story - arch-rival Tui has coped because its finances are healthier.
Weather
The summer heatwave of 2018 encouraged would-be holidaymakers to stay at home, undermining prices in the “lates” market where operators try to clear unsold holidays. There seems to have been a hangover into 2019, with customers calculating that waiting to book is a productive strategy.
Competition
A pincer movement of Airbnb and budget holidays has changed consumer behaviour, though Thomas Cook still managed to sell 11m package holidays last year.
Banks and debt
The tour operator has been attempting to shoulder a huge pile of debt for the past decade – £1.7bn worth at the last count. Successive managements failed to remove meaningful chunks. The banks argue they have supported an overstretched company for years and the details of why it could not be saved may have to await the report from the Insolvency Service.
Bad management
Thomas Cook’s borrowings were too high. The moral of the tale is that tour operators should fund themselves conservatively. If your balance sheet is fragile, you are at the mercy of events in an industry where most of the cash arrives in the summer and then flows out in the winter.
Nils Pratley, financial editor
At least Manny Fontenla-Novoa, Fankhauser’s predecessor and an upcoming witness on Wednesday, cannot enter the same “I’ll think about it” plea. He earned £17m in eight years and left in 2011 when the tour operator was on the brink of collapse the first time. He’s had plenty of time to think, and ample warning.
Gender pay reporting should include SMEs
Andy Haldane, the Bank of England’s chief economist, makes a fair point. Gender pay reporting should be extended to companies employing more than 30 people, instead of being confined to those with more than 250 staff.
Small and mid-sized companies may groan at the idea of more bureaucracy, but they shouldn’t. First, crunching the numbers isn’t difficult. Second, if the overall data is to be useful to policymakers, it should be comprehensive. Haldane estimates that the current reporting requirement covers only 40% of the UK working population in the private sector. Third, self-examination is worthwhile: why wouldn’t you want to know your own pay gap?
