$34 Million Salary Needs a Spotless Performance

Kapoor's done well, but there are chinks in the company's well-polished armor

Reckitt Benckiser's directors might need a batch of its Nurofen headache pills after the consumer goods company's annual meeting on Thursday.

Some investors are unhappy about CEO Rakesh Kapoor's 23.2 million pound ($33.7 million) pay deal in 2015, and intend to make trouble by voting against the remuneration report. Kapoor had a basic salary of 891,000 pounds in 2015, a 3 percent increase on 2014 -- hardly excessive by FTSE 100 standards. But the total's been bumped up by an 18.2 million pound payout from a long-term incentive scheme that started in 2013.

Unlike BP's Bob Dudley, who suffered a symbolic vote against his pay, this isn't about rewards for perceived failure. Reckitt has been something of a star performer under Kapoor. But, whatever happens on Thursday, it does crank up the pressure on him to justify such lavish treatment.

Since he took over from predecessor Bart Becht, Reckitt has generated a total return of 135 percent, well above the FTSE 100's 35 percent.

Cleaning Up

Reckitt Benckiser has outperformed the FTSE 100 Index since September 2011

Source: Bloomberg

Kapoor's total pay in 2015 was above that of A.G. Lafley at rival Procter & Gamble, who received $18.3m in 2014-2015. It was also more than Unilever's Paul Polman, who took home 10.4 million pounds in 2015. But then Reckitt's returns have comfortably beaten those companies too.

Reckitt says some two-thirds of Kapoor's 18.2 million pay-out is down to the share price performance. So on that basis it doesn't look entirely unreasonable.

Other metrics are impressive too. Sales have continued to expand, as Kapoor has stuck to Becht's strategy of moving away from slower-growth homecare products into more vibrant consumer health products. Aided by cost control and tight inventory management, he has fattened margins and lifted profits.

Rakesh's Run

Reckitt Benckiser has delivered consistent organic growth

Source: Bloomberg

Yet Kapoor's 23.2 million pounds -- there's also a 3.8 million pound annual bonus in the mix -- is eye-catchingly generous for a European company. It represents about 2,600 percent of his salary, compared with the 300-400 percent more typical for UK companies. With that level of pay, there's no room for slip-ups.

And there are signs of chinks appearing in Reckitt's well-polished armor. It warned in February that 2015's double-digit growth in like-for-like sales of consumer health products wasn't sustainable. That's understandable, given that Reckitt described this level of expansion as "exceptional," and explains its interest in acquisitions such as Pfizer's consumer health business. Nevertheless, healthcare is central to the Reckitt story, so any slowdown is a worry.

Then there are the recent developments overseas. In Australia, Reckitt was fined 1.7 million Australian dollars ($1.3 million) for misleading consumers over those Nurofen painkillers. Meanwhile, it's among a group of companies being probed by South Korea for selling humidifier disinfectants linked to respiratory illnesses and death. Bloomberg News reports that Korean supermarket chain Lotte Mart would stop ordering some Reckitt products.

So, while things may have gone well for Kapoor so far, there are faint stains on his company's once spotless surface. Reckitt trades on about 23 times forward earnings, a justified 20 percent premium to P&G. Whether that warrants a pay package almost double that of Lafley is something shareholders are right to question.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andrea Felsted in London at afelsted@bloomberg.net

    To contact the editor responsible for this story:
    James Boxell at jboxell@bloomberg.net

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