More than 1,000 of J Sainsbury's senior staff and store managers could share a jackpot of £200m if a private equity consortium succeeds in its takeover bid.
Chief executive Justin King stands to gain over £10m alone from one of the FTSE's most generous company share schemes, introduced two years ago to help revive the flagging retailer's fortunes. Other bonus plans could add £3m to his windfall, bringing the total to £13m. Mr King could pocket the payout and still be kept on to run the business by its new owners.
After a surge in the supermarket's share price on Friday, private equity firms CVC, Black- stone and KKR announced to the Stock Exchange that they were "at the preliminary stage of assessing Sainsbury".
A £195m payout to the retailer's staff would be triggered if Sainsbury's were bought for 600p per share. The stock closed on Friday at 507p, valuing the company at £8.7bn.
Under the "Share Plan 2005", Sainsbury's promised to award a maximum of 32.5 million shares to staff in 2009 as a reward for meeting two key targets. But a takeover would allow the participants in the scheme to cash in early. The amount received would depend on the company's performance at the time of the change of control. Both the targets have already been comfortably met, meaning a maximum payout.
The first target was for the retailer to increase sales by £2.5bn from £13.6bn for the year ended March 2005. In the year to March 2006, sales were £17.3bn.
The other performance benchmark was for the company to increase its earnings per share by at least 21 per cent between 2005 and 2009. Earnings at the start of the scheme were 8.3p but this year could hit 15p, which would represent an 80 per cent increase two years ahead of schedule.
It is thought that all the participants in the scheme, including Mr King, would benefit from the windfall whether they remained at the company under new ownership or not.
As part of the scheme, Mr King was also required to buy just under 120,000 shares himself. The price was under 300p at the time he made the purchase.
Mr King, who took the helm at Sainsbury's in 2004 after joining from rival Asda, earned £1.5m last year in basic salary and bonuses. He would also be in line to receive up to 12 months' pay if his contract were terminated after a takeover.
Under a separate bonus plan approved last summer, he stands to gain 150 per cent of his salary if other targets are met.
Under a long-term incentive plan, also approved last year, Mr King could be awarded shares worth £326,000, or just under half his salary. These could be quadrupled if financial targets are hit. They are due to vest in 2009 and 2010 but would be triggered early with a change of control.
Corporate governance watchdog Pirc criticised aspects of the pay plan last year as "potentially excessive". It also said the targets were not challenging enough.Reuse content