Pearson Grants CEO 20% Pay Increase in Wake of January Meltdown

  • CEO Fallon’s 2016 earnings jump to 1.52 million pounds
  • Company freezes CEO’s pay for this year as crisis intensifies

Pearson Plc rewarded Executive Officer John Fallon with a 20 percent pay increase for a performance last year that led to January’s profit warning, dividend cut and ensuing stock plunge.

Fallon’s 2016 compensation was valued at 1.52 million pounds ($1.9 million), the company said in its annual report Friday, compared with 1.26 million pounds in 2015. Pearson is freezing his salary for this year as the crisis engulfing the company has deepened, sending the stock down 22 percent since the start of 2017.

John Fallon

Photographer: Simon Dawson/Bloomberg

In January, Pearson was forced to put its stake in the iconic Penguin Random House book business up for sale to raise cash. That contrasted with months of optimistic statements by Fallon about the challenges Pearson faces in the U.S., where college enrollments and its testing business are down, and textbook sales decline.

“The Pearson board has decided John Fallon will receive a limited bonus, in line with the company’s broader bonus policy,” Pearson said in a statement. “However, given Pearson’s lower long-term profits guidance, the board is freezing the CEO’s base pay in 2017 for a second year running, and will also reduce the economic value of the CEO’s 2017 long-term performance related shares, which are yet to be awarded.”

The 2016 increase in Fallon’s pay will be hard for Pearson’s employees to take given all the company has been going through, said Stefan Stern, director of the High Pay Centre, a non-partisan think tank.

"All the talk at the firm has been about retrenchment and there has been very little good news for quite a long time,” Stern said. “People just won’t understand, however it’s calculated or explained, how the increase is justified."

The 2016 pay increase was largely due to an annual incentive payment of 343,000 pounds, compared with zero in 2015. Fallon’s base salary last year was 780,000 pounds, little changed from a year earlier. Fallon intends to use the bonus payment to buy Pearson shares, the company said.