Sports Direct, the booming high street chain controlled by Newcastle United owner Mike Ashley, is to hand 2,000 managers and other permanent staff share bonuses worth almost £155m.
The majority of the group’s 27,000 staff are agency workers, however, and will not be eligible for the bonus. Of these, some 15,000 are thought to be British staff on zero-hours contracts, meaning Sports Direct can decide how much work to offer them and when. Many earn the minimum wage.
Bonuses for the top 2,000 staff relate to a performance scheme started by Sports Direct in 2011 and is worth an average of £77,000 based on Thursday’s closing share price. The payout has been triggered after the group beat targets for growing its top-line operating profit every year for four years.
The first tranche of the award, worth an average of £18,000 per employee, will be released in September, with the balance paying out in 2017.
A new four-year bonus scheme was set out last year, but Ashley said on Thursday that he planned to lower its performance target for the current year. The scheme had required top-line operating profit to reach £480m for the current year, but Ashley now wants this bonus threshold to be cut to £420m.
Many institutional shareholders object to directors tinkering with long-term performance criteria after they have been set. But as Ashley has a controlling interest in Sports Direct, any opposition they offer at the group’s annual meeting in September is unlikely to derail the move.
Ashley, who founded Sports Direct in 1982 and now acts as executive deputy chairman, believes the lower bar is fair because the previous target had assumed the group would make acquisitions, including House of Fraser, which had not materialised.
Ashley does not receive pay from the company and is not part of any bonus scheme. His fast-expanding business now operates more than 660 stores, including 440 in the UK, with sales of £2.8bn. Underlying pretax profit for the year to 26 April rose 20% to £300m.
One of the few areas in which Sports Direct lost ground was in its alternatively branded stores division, trading as Flannels, Van Mildert, Cruise and USC. This unit recorded a sales fall of 3% to £208m after a number of lossmaking shops closed.
In a statement to the stock exchange, Sports Direct chief executive, Dave Forsey, said: “The success of the group has largely been created by our 27,000-strong workforce, whose dedication and commitment has been sustained over many years.
“Their enthusiasm and ‘one team’ attitude has assisted the group to succeed where many other retailers have failed. The board are extremely grateful.”
Sports Direct chairman Keith Hellawell, former chief constable for West Yorkshire Police, hit back at critics of the group’s extensive use of agency workers on zero-hours contracts. “Much of the comment regarding the group’s use of zero-hour contracts has been unfounded and inaccurate,” he said.
The group last year found itself singled out by Ed Miliband when the-then Labour leader attacked employers making extensive use of zero-hours contracts.
“For too many of its employees, Sports Direct is a bad place to work,” Miliband said. “This is not about exceptional use of zero-hours contracts for short-term or seasonal work which some employers and workers may find convenient. This is the way Sports Direct employs the vast majority of its workforce. These Victorian practices have no place in the 21st century. And under a Labour government, the exploitation of zero-hours contracts will be banned.”
Luke Primarolo, regional officer for the trade union Unite, said: “If they are making these kinds of profits they need to show the proper responsibility to their workforce. That means taking them off precarious contracts and putting them on proper terms and pay the real living wage.
“They should act as a responsible employer should rather than exploiting weak employment legislation.”
The company argues that the flexibility of zero-hours contracts is welcomed by students and working parents. This is disputed by union officials, who say their members who feel under pressure to take work when it suits the company, often at short notice and regardless of their own circumstances.
Forsey claimed George Osborne’s plans to hike the minimum wage to £9 an hour by 2020 would add just 1% or 2% to the group’s labour bill. Before then City analysts are looking for a boost to business from restructuring at the group’s main warehouse in Shirebrook, in Derbyshire, as well as an expected fillip to trade from the European championships next year and the Olympic games in Rio de Janeiro.
Around 700,000 sq ft is scheduled to be added to the Shirebrook warehouse and office facility later this year.
City analysts at RBC Capital Markets said: “Post the election we think concern over the use of zero-hours contracts has subsided.”
Elsewhere, analysts expect the group to make progress on long-promised acquisitions of rival businesses as it further expands, both internationally and in the UK. The company has missed out on an number of deals recently, and has lost former investment banker Jeff Blue, who had been heavily involved in acquisition efforts as strategic development director.
This article was written by Simon Bowers, for theguardian.com on Thursday 16th July 2015 19.46 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010