Can struggling operators justify multi-million CEO salaries?13th May 2015 8:28 am GMT
The publication of the bwin.party annual report and Ladbrokes’ AGM shines a spotlight on executive pay with employee resentment bubbling.
There were rumblings of discontent at bwin.party’s HQ upon the publication of the company’s annual report. The main bone of contention was chief executive Norbert Teufelberger’s pay packet of £1,727,902.
Over at Ladbrokes Annual General Meeting, shareholders were in revolt with an estimated 40 per cent refusing to sanction a payoff for departed boss Richard Glynn, according to initial reports in The Guardian. In the final vote 30.23 per cent of shareholders voted against the remuneration committee’s report. No other action at the AGM received less than 91 per cent support with the vast majority receiving over 99 per cent approval.
Teufelberger earned 21 per cent less than he did in 2013, when he took home £2,191,585. Well, he didn’t exactly “take home” £2,191,585 as the bulk of it came in shares. His basic salary is only £500,000.
It is easy to understand why employees might be disgruntled. Their numbers have dwindled by 13.5 per cent over the past two years and bonuses have also sunk as revenue, profit and player numbers have continued to decline. It would be natural for many to ask what exactly the CEO has done to deserve a £1.7m pay packet.
A bwin.party spokesperson points out that Teufelberger has not received a pay rise since the merger with PartyGaming and that his package is approved by the remuneration committee. Its report was approved by 86.5 per cent of shareholders in 2013. The company’s 2014 AGM is next Thursday. Will the remuneration report receive the same level of support this time round?
Remuneration reports are a complex business and if employee John or Joan does not sit in the human resources or finance team, he or she will struggle to make head or tail of it.
For the record, here’s the key line from it: “In light of the failure to return the business back to revenue growth, the Remuneration Committee, with the support of the Executive Directors, decided not to make a 2014 award under Element A.”
That means no cash bonus for Teufelberger or chief financial officer Martin Weigold. However, the second part of the pair’s pay packet relates to “strategic and transformational targets” set out at the beginning of the year. The chair of the remuneration committee writes: “I am pleased to report that the senior management team achieved 67.18 per cent of
Here are the targets and the percentages, which the team achieved in brackets:
– Roll-out Fundamental Transformation of Technology Organisation and Operations (75 per cent)
– Lean and efficient engineering: increase platform availability, reduce software bugs and reduce technology debt (45 per cent)
– Market Channel Expansion (100 per cent)
– Value realisation of non-core assets and new business (33.54 per cent)
– Independent US set-up (70 per cent)
– Strategic Move from ‘Volume to Value’ (61 per cent)
– Leverage Technology Software Platform (70 per cent)
There are some very clever people who devise the formulas for these things but you can understand your average employee struggling to understand how one can achieve 61 per cent of a strategic move or even how one achieves 70 per cent of a technology platform leverage. And is that achievement really worth 15 per cent of £1,227,902?
But hey, Teufelberger founded this company so he deserves some credit, despite its recent performance.
It is easy to be flippant about high salaries. Teufelberger and Weigold have a seriously difficult and stressful task on their hands. As senior executives their workload will be heavy and their hours long. However, many argue that £500,000 a year would seem like ample recompense without rewarding them for achieving 67.18 per cent of what was expected of them.
bwin.party’s annual report provides a handy list of companies we should be comparing Teufelberger’s salary to. Among them is William Hill. Chief executive James Henderson’s salary was set at £550,000, around 15 per cent less than his predecessor Ralph Topping, but roughly similar to that of Teufelberger, who is vastly more experienced.
However, Henderson has yet to serve a full year so we cannot compare performance. In Topping’s final year as Hills’ wildly successful CEO he picked up a base salary of £650,000 plus benefits, bonuses and shares etc. His total package came to £4,672,790, which makes Topping about 113 per cent more successful than Teufelberger.
In 2013, bwin.party’s revenue dropped 18.6 per cent or €149.2m. William Hill’s rose 16.4 per cent or about £209.6m. That’s probably worth paying an extra couple of million to the CEO.
Going back to Richard Glynn and his final years at Ladbrokes. Glynn managed to keep Ladbrokes’ revenues on a roughly even keel last year, for which he was rewarded with a package of nearly £4m. If you pay £4m for zero growth (in a good year) then what can you expect to get for a miserly £2m?
Perhaps, the UK’s listed bookmakers are overly-generous. Let’s have another look at bwin.party’s comparator companies: Lottomatica, Electronic Arts, MGM, Caesars, Expedia, Netflix, Bally, Betfair, Zynga… Zynga!
Zynga is a very similar company to bwin in many ways. It has a chief executive/founder and it is an industry darling that has struggled to compete as the market has matured and moved in different directions. In 2011, chief executive and founder Mark Pincus was paid $1.68m. The company did not disclose executive salaries for 2012 but as times grew hard and Pincus was forced to make staff cuts of around 5 per cent he made the symbolic decision to slash his salary to $1 with no bonuses in cash or shares. He then handed the reins to a more qualified candidate before resuming control on a salary of just $1 once again. Of course, you can argue that Pincus can afford a salary of just $1. Well, yes. Quite.
In times of austerity, employees can grow disillusioned when they see their bosses pocketing large salaries. Bosses need to work extra hard to justify themselves and many feel that it is not just the hard finances that matter.
Employees need the soft, warm fluffy things when times are tough. The troops at the company’s Gibraltar HQ need rallying. The trouble is that Teufelberger isn’t around HQ often enough to rally the troops, according to some disgruntled employees. They miss former co-CEO Jim Ryan, who was always in Gibraltar and was big on the soft, warm fluffy things. Things that made them feel good about what they do, and who they do it for.
PR and responsible gambling are becoming increasingly important in the world of regulated markets. Executive pay is another factor to add to the mix. Nobody gives a fig what the boss earns when the company is doing well. When it’s not, it’s time for a rethink.