Boo Hoo for BooHoo: Investors expected to revolt over CEO’s proposed pay packet

July 6, 2020

2 min read

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What's going on here?

Fashion giant BooHoo has come under pressure from investors following a £1m pay-out to its chief executive, John Lyttle.

What does this mean?

The proposed pay package, which also boosts senior executives’ salaries by up to 30%, has come under criticism. Advisory group International Shareholder Services has recommended that investors vote against it, citing that no explanation had been given for the size of the award

A BooHoo representative later explained that the remuneration was based on pay-outs Lyttle had lost when moving from his previous role at Primark and the raises given to senior executives were standard for companies of comparable sizes. They also stated that investors were made aware of these pay changes in 2019.

What's the big picture effect?

The Enterprise and Regulatory Reform Act 2013, passed by the coalition government, requires companies to seek approval from investors for their remuneration policies at least once every three years. The votes are binding, meaning a revolt by investors could lead to a reduced pay package. Investor votes against executive compensation have increased over the last decade as salaries continue to rise. 

An investor revolt could have significant consequences for BooHoo. Past investor rebellions, such as the coup at Disney in 2005, have led to an upheaval of management. It is also possible that if investors’ demands are not met, they may take more radical action, such as collapsing the company’s stock price through concentrated selling. 

Despite these potential far-reaching consequences, a recent by the Chartered Institute of Personnel and Development and the High Pay Centre found that shareholder revolts have little impact on executive pay

The pay-out controversy comes hot on the heels of a short-seller attack against BooHoo in May 2020. The short-seller in question, Shadowfall, had been vocally critical about BooHoo’s purchase of rival fashion chain Pretty Little Thing, which came at great cost to shareholders. 

Despite shareholder anger, BooHoo has successfully navigated the COVID-19 pandemic, with share prices rising by 22% in the last year and a 20% rise in online sales expected in the first quarter of 2020. The company is currently valued at £4.6bn. Lyttle is in line for a payout of £50m if BooHoo’s value rises to £6bn by March 2024, according to the Times, however this seems unlikely if investor dissatisfaction continues. 

A reduction in pay for Lyttle may not be a bad thing for BooHoo. A 2016 report by MSCI concluded that companies with lower-paid CEOs led to greater shareholder returns. Regardless of BooHoo’s strong performance, a pay-cut for Lyttle may take the company even further. The outcome of the pay package vote is yet to be seen.

Report written by Conor McDermott

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