Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Just what is it with Britain's big retailers this week?

First, there was Sports Direct International Plc spending $50 million on a plane after being accused of paying workers less than the minimum wage. 

Next up is Marks and Spencer Group Plc, which announced its long-term incentive awards for top executives on the heels of a row over staff compensation cuts to offset higher statutory pay. Incidentally, M&S's announcement was made on Thursday just as the rest of the retail world was focused on the big expenditure by Sports Direct Chief Executive Officer Mike Ashley.

Tall Task
Steve Rowe has his work cut out to revive M&S's clothing sales while food looks more challenging
Source: Bloomberg Intelligence

Steve Rowe, M&S's chief executive officer, could be awarded shares worth 1.9 million pounds ($2.4 million), assuming the current stock price and that all performance criteria are met. There's also potential for a 1.6 million-pound bonus for the current financial year.

M&S has form when it comes to punchy pay. As Gadfly has noted, it paid former chief executive Marc Bolland 17 million pounds during his six years at the helm of the retailer. That was despite quarterly same-store clothing sales mostly shrinking during his tenure, and shareholder returns lagging rivals'.

But there are some reasons why M&S's announcement is less egregious than Sports Direct's flashy new ride.

Rowe announced his big strategy for reviving the retailer's fortunes in November, so it made sense to delay the announcement on pay until after that. While investors might have mixed feelings on the amount, at least they know what he's got to do to deserve such a big payout. 

Missing the Max
M&S's previous long-term incentive plans have paid out far from their maximum
Source: Company Reports

Gadfly has argued that Rowe's strategy is too late, and probably too little to turn round M&S. His planned expansion of its presence in the lower margin food business looks particularly ill timed, given the prospect for faster inflation to eat into disposable incomes and Tesco Plc's renewed focus on its top-end customers. While he's getting to grips with M&S's sprawling store estate, planned closures should probably have gone further.

At least he's seen sense and is not committing to another big capital investment program, after Bolland and his predecessor Stuart Rose each spent billions of pounds, including on sprucing up stores.

Rowe faces a tall task in turning round M&S, particularly after the decline in sales and profit it suffered during Bolland's rein. The long-term incentive pay-out depends on M&S's earnings per share performance, return on capital employed and free cash flow all going in the right direction over the next three years. So there's no guarantee the latest share award will pay out the maximum.

It's worth remembering that over Bolland's tenure, he only received a fraction of what he was entitled to under long-term incentive plans, because the business performed so poorly.

Rowe will be keen to avoid the same fate. The figures may be eye-catching, but pay is almost a sideshow at M&S. Without a substantial improvement in its performance, particularly in clothing, his pay won't be the only thing on the line.

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:
Jennifer Ryan at jryan13@bloomberg.net