James Moore: Retention packages are a huge mistake – and it's pensioners who suffer
Outlook Yesterday was a rather grim one in the City but there was at least one small outbreak of sanity. A plan cooked up by the mining company Xstrata to pay £140m to 70 managers after its takeover by, sorry merger with, the commodities trader Glencore was rejected by shareholders and Xstrata's chairman, Sir John Bond, resigned as a result.
This might not seem like all that big of a deal – the merger was voted through, after all (and we may all have cause to regret that, given the power that "Glenstrata" will have) – but it is.
If you don't have a pension now, thanks to the Government's decision to introduce automatic enrolment into workplace schemes, you will soon.
The success of that pension will rely in large part upon the performance of the Stock Exchange, and a good proportion of it will probably be invested in funds which track the market, because they are simple, cheap and largely effective.
This means your retirement will in part be dependent on the performance of Glenstrata, which is in the FTSE 100 despite being run out of Switzerland.
Several Xstrata directors were anticipating fat fees through similar roles with Glenstrata, including Sir John, who would have been its chairman. They loudly argued that the success of the deal rests almost entirely on the lucky 70. Hence the £140m for doing little more than staying in post.
But such retention packages cause real harm to investors, including (thanks to auto-enrolment) you.
At the top level of business people don't apply for jobs, they are head-hunted for them. And if a rival company and its headhunters were to decide that one of the Xstrata 70 was the right man for them, they would simply buy out that retention package with the aid of a golden hello, rendering it worthless to Glenstrata.
As likely as not, the new employer would offer a retention package of its own. So two sets of shareholders could lose out. And so would your pension.
At last, however, it seems that the City's institutions have worked this one out. The Qataris, Xstrata's biggest independent shareholders, helped by declaring themselves hors de combat and abstaining. But that might not have mattered. The bonus plan was voted down by a thumping 78.5 per cent.
That represents a real kick in the teeth to Sir John, who championed it, and a shot in the arm to investors. Now he has gone, it is to be hoped that other chairmen, and directors, will pay heed to what has happened.
As for the managers, the message is simple: get to work. If the deal's success is so dependent on them, it's in their interests to show that, when they'll doubtless get paid.
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