‘Excessive, inflammatory and a red rag to the enemies of the free market.” The rocket fired at BG Group by Simon Walker, director general of the Institute of Directors, hits its mark. A pay package of up to £25m for incoming chief executive Helge Lund is absurd, even by modern boardroom standards, and should be rejected by BG’s shareholders.
The arrogance of BG’s board is twofold. First, it wants to cast aside a pay policy for executives that was agreed with shareholders only six months ago. Second, it wants to make the award of the £12m-worth of “golden hello” shares dependent solely on the say-so of the pay committee; there would be no performance conditions.
“Helge’s track record speaks for itself,” has been the gist of BG chairman Andrew Gould’s explanation. Yes, everybody agrees Lund is a fine fellow who did great things at Statoil. But the heart of the matter is the issue identified by Walker: “It cannot be right to put fund managers in a position where, unless they approve excessive pay way beyond agreed policy, their shares will fall in value.”
Quite. If BG’s board gets its way a grim precedent will be set. A chairman in Gould’s position will feel entitled to write whatever cheque he wishes to make a succession headache go away.
Fund managers are irritated, as comments this week from L&G and Aviva Investors indicate. Whether they have the backbone next month to vote against Lund’s lucre (seven times what he earned at Statoil) is another matter. But they should – otherwise it’s open season for another damaging round of boardroom pay excess.
If Sir Ian Cheshire had quit Kingfisher seven months ago he could have retired with a share price above 400p. As it is, he will probably depart next week with sub-300p on the scorecard. The B&Q group’s shares fell 4% yesterday to 291p.
The longer view of Cheshire’s seven years at the helm remains firmly positive. He inherited a mess. At the low point, before Kingfisher started to generate cash again, you could have picked up the shares for under 100p.
What the current share price says is that self-help measures are no match for a French slump. B&Q in the UK, with a push from the Screwfix operation, is trotting along nicely: profits were up 11% to £70m in the third quarter in the UK and Ireland.
But France, the bigger part of Kingfisher, went into reverse around May. Profits were £120m in the quarter, down 14%, or 8% if you’re counting in euros. Blame tax rises, a slow housing market and general gloom in euro-land.
Jefferies’ analysis points to how weak the French DIY market is: similarly depressed levels of demand were last seen in the mid-1990s, when the French population was 15% smaller and interest rates were 6.5 percentage points higher.
Meanwhile, Kingfisher’s smaller markets offer no relief. Poland has slowed; Russia would be fine if only the rouble weren’t in freefall; and China remains an exercise in damage limitation. Add it all up and group retail profits fell 12% to £225m in the quarter.
“Overall, we remain cautious on the outlook, especially in France,” said Cheshire. French successor Véronique Laury offers local knowledge but no magic wand.
No housing crash
The housing market is cooling, as Nationwide’s lower lending figures and comments suggest. But this can hardly be a surprise. Conditions from summer 2013 until spring this year were red-hot, at least in London and the south-east, and plainly unsustainable.
But don’t think the mini-boom must be followed by a mini-crash. The traditional drivers of house prices are unchanged. Too few new homes are being built. Unemployment is still falling. Interest rates could be on the floor for another year. Banks are (finally) being more competitive on mortgages. Nationwide does not expect “a dramatic slowdown” in the housing market. It’s probably right.
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