Moving the Goalposts?

Author

Damian Carnell
December 23, 2022

What’s the Story?

This month the FT amongst others reported investor discontent with ASOS recasting its annual bonus arrangements for the current year, after the report and accounts were published. 

Asos loosens criteria for annual executive bonus - Retail Gazette

<div class="at-above-post addthis_tool"></div>// Asos has changed the criteria for its annual executive bonus scheme // Investors at the online retailer will get a binding vote on the remuneration policy, including the revisions, at the company’s annual meeting next year Asos has modified the criteria for its annual executive bonus scheme in a move that analysts said reflected […]<div class="at-below-post addthis_tool"></div>

https://www.retailgazette.co.uk/blog/2022/12/asos-loosens-performance-targets/

The change halves the weighting on sales, lightens the profit weighting, with the displaced bonus put on cashflow.

In year ended 31 August 2022, a loss of £32mill was in point, driven in large part by a stock provision of £130mill. Over 100 job losses were announced.

Investors are displeased, one reportedly saying:

“They are effectively being paid to liquidate stock and sack people . . . it shows how asleep at the wheel the board was.”

Financial Times

With remuneration policy renewal also on the agenda for the AGM on 11 January 2023, sparks may fly.

Why does it Matter?

Resetting incentive targets is a big and longstanding corporate governance no no! 

Direct resetting of the numbers is rare, but reframing metric weightings can have a similar effect. The investors in change of our pension money can see the similarity.

ASOS did fabulously well until 2018, when things got rocky. From March 2018 to December 2022 the share price fell 94%.

But the new CEO joined only in June 2022, and the CFO role is vacant. There is a strong case for new talent, and fresh thinking. Top talent is needed to embrace a company facing major change and uncertainty inherent in a major turnaround.

Sticking to corporate governance norms in plainly non-normal times is not in the spirit of "Comply or Explain".  ASOS has explained. But well enough? And will their investors agree?

Newspoint View

Incentives are intended to create shareholder value. That means attracting and engaging the best talent, at a sensible cost, directing their efforts in the right directions.

When things change it is right to change compensation too. What is bad is twisting the incentive structures to ensure pay out when that is unwarranted. This is the old "moving the goalposts" argument.

But if compensation change suits the wider talent, strategy and business need, then it makes sense. Particularly if we are not paying the same people who drove the company into a hole in the first place.

ASOS has attracted a new CEO but may have been too shy. First the case for the bonus change might need to be made more strongly. Second, the extent of compensation changes might be greater than that proposed. The new policy adds various shareholder friendly features, but there is no rise in bonus quantum, and no change to LTIP. 

The new CEO is a great first step, but on success he will be in demand elsewhere. Meantime, the CFO post remains vacant.

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Please feel free to email or call:

Damian Carnell - [email protected]         +44 (0) 7989 337118 

VA Bec Bostock - [email protected]

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