In his new combined role as chief executive and chief creative officer of Burberry, Christopher Bailey has come under fire from investors for his pay package. But what is he really worth to Burberry, and how can he quell the shareholder revolt?
Christopher Bailey | Source: Courtesy
LONDON, United Kingdom – At Burberry’s annual meeting on Friday, 53 percent of shareholders rejected a stock payout worth £20 million (about $34 million) to Christopher Bailey, who is now installed as the company’s chief executive, in addition to his role as chief creative officer. While the result of the vote was non-binding, it remains a strong signal of dissent from shareholders.
Over the weekend, London newspapers covered the story with unusual fervour for a fashion business story, placing Mr Bailey – the closest thing that fashion has to an ‘industry darling’ – in an uncomfortable, new kind of spotlight. The lead story on the front page of the Financial Times – a must-read not only for the financial community, but also for many of the high-spending customers around the world who have helped to drive the company’s extraordinary performance over the last decade – screamed, “Burberry chief’s £20m pay defeated.” A full page business story in London’s Sunday Times asked, “Because He’s Worth It?” Even the notoriously sensationalistic Daily Mail covered the story, simply calling it ‘obscene.’
The payout was awarded to Bailey as a retention incentive the company had to award in the face of “competing job offers,” according to Burberry chairman Sir John Peace.
“We are acutely aware he could command a much higher package outside the UK.”
“We are acutely aware he could command a much higher package outside the UK where the size and nature of remuneration can be very different and not publicly disclosed,” explained Mr Peace. “Angela [Ahrendts] went to Apple for over $60 million. There is no way we can do that.”
Mr Peace’s comments confirm that Bailey had received interest from other major fashion houses and had the opportunity to leave Burberry around the same time as Angela Ahrendts. This really seems to be the crux of the issue at stake here. If both Bailey and Ahrendts left the company in the same year, it could have been disastrous, not only for the company’s stock price but also for the future of the company as a whole. Finding a suitable replacement for either role would have been hard enough; replacing both of them would have been nigh impossible. In short, Burberry had to find a way to keep Bailey on side.
Indeed, the scale of Mr Bailey’s retention bonus, which comes in addition to an already generous annual pay package worth up to £10 million (or $17 million), is one of the largest pay packages that I have come across in the business. It seems Bailey had Burberry’s board over a barrel, and could name his price for staying with the business, as the cost of losing him was too high to even contemplate.
Perhaps it was the total package of a guaranteed stock payout and the unprecedented opportunity of becoming chief executive officer that finally convinced Bailey to stay? Not only could he continue to drive the incredible turnaround at Burberry that he has overseen over the past decade, but he could do so while making history as the first designer in a publicly-traded fashion company to become CEO. It is an ambitious, and admirable new challenge for him to take on.
The scale of Bailey’s pay package also points to the inordinate value that creative leaders can bring in an industry where top talent is harder and harder to come by. A report published by The Business of Fashion and The Boston Consulting Group earlier this year found that nearly 70 percent of luxury and fashion companies find it “impossible” or “very difficult” to hire creative directors.
So, more and more fashion businesses are using equity and upside incentives to attract and retain top creatives. In the ongoing legal battle between Kering and former Balenciaga creative director Nicolas Ghesquière (who has since joined rival luxury group LVMH as creative director of Louis Vuitton) we learned that Mr Ghesquière signed a contract in 2012 worth €20 million (about $27 million) over five years. He also owned 10 percent of the company, which was valued at €32 million when Ghesquière exited the business. Alber Elbaz is also said to own a significant chunk of equity in Lanvin, a business which he has singlehandedly elevated to a new status.
That being said, what really seems to have irked Burberry shareholders was not that Mr Bailey would be rewarded handsomely for his work or that he would be offered a retention package, but rather that the rewards came without any link to the future performance of the company. When Ghesquière and Elbaz were rewarded with equity in their respective businesses (neither of which is directly traded on the stock market), the brands were in the doldrums and the value of the companies was marginal. The Burberry stock awarded to Bailey, on the other hand, has real tangible value today.
When asked on Friday if he would be prepared to give back some of the generous stock allocation to quell the shareholder revolt, Bailey simply said: “It is not about giving something up.”
Perhaps this is something he should reconsider. As the chief executive of a global, publicly traded business accountable to his shareholders, giving back some of his allocated shares and linking them to Burberry’s performance would demonstrate not only that he believes in himself, but also in the future value he can create for the business, and that he is willing to put his money where his mouth is.
What do you think?
BY IMRAN AMED 14 JULY, 2014 – businessoffashion.com
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– The Living Fashion