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Carillion board's "greed on stilts"

26 March 2018

The Work and Pensions and BEIS Committees publish papers from the Carillion Remuneration Committee (RemCo) that appear to strongly reinforce the analysis by Amra Balic, Head of Stewardship at BlackRock, that Carillion's board was more concerned with "how to remunerate executives rather than what was going on with the business" (Oral Evidence, Q1076).

Clawback of bonuses

Carillion had set out highly restricted circumstances in which bonuses could be clawed back from directors. Alison Horner, Carillion's RemCo Chair, told the Committees that they took legal and remuneration advice (Oral Evidence, Q640) but the company's remuneration advisors, Deloitte, denied that they ever provided such advice (Michael Jones letter, 13 March).

When the RemCo considered clawback in February 2015, they explicitly ruled out extending it beyond a handful of directors, as "a more conservative trading practice around contracts … would have a detrimental impact on performance" (i.e. if contract-related bonuses were clawed back when the contract turned out not to be worth what had been stated – as it is now known happened quite spectacularly in at least several instances: 2015.2.26 – RemCo – Clawback Paper) and discussed the need to avoid being held to account for "hindsight" and to minimise the impact of the re-statement of accounts. (RemCo Minutes 2015.2.26 c)

Deloitte's advice to Carillion on clawback in September 2017 noted that the already weak provisions further didn't allow any of the bonuses paid in cash to be clawed back at all  (2017.9.7 – RemCo – Deloitte Report)

In September 2017, after Carillion's first profit warning, the Remco finally looked again at the clawback conditions and agreed to extend to instances including serious reputational damage and failures of risk management (RemCo Minutes 2017.9.7). The Committees have however seen no evidence that the RemCo sought to enforce these, despite the dire state of the company's finances.

The RemCo did at one point consider asking directors to return their bonuses from 2016, but the weak and restricted terms they had already agreed made this impossible. (RemCo Minutes 2017.9.7). The Committees have also seen no evidence to suggest that any further attempts were made to return cash from bonuses to the business.


RemCo papers from August 2016 suggested flexibility "to increase the maximum bonus opportunity", despite shareholder feedback of a growing dissatisfaction with the way that the company was setting its remuneration for senior managers. Investors criticised the use of "non-financial objectives" and "personal and individual "stretch targets" – Carillion board's response was to recommended RemCo "rebadge" the bonuses rather than make any fundamental change. (2016.8.18 – RemCo – Remuneration Policy Review, Bonus Disclosure, Reward Approach, Executive Remuneration)

Deloitte's main recommended changes to remuneration policy included:

  • pension provision for new executives should be capped at 25% (40% for the likes of Richard Adam etc.)
  • there should be extended bonus disclosures and a "re-badging" of some personal targets as "Corporate KPIs" "to make the evidence for paying out a bonus more compelling"
  • "stretch" targets should actually be stretching

Shareholders, including BlackRock, sought to limit the level of bonuses paid to directors in 2016. An attempt by the company to increase the maximum bonus level to 150%  – although they promised not use to use the maximum possible amount (Carillion Letter to Blackrock 12 December 2016) – was met with resistance, forcing the company to back down to 100% of salary maximum bonus pay-out (Carillion letter to BlackRock 7 March 2017).

Other pay issues

As the company started to issue profit warnings, the RemCo had to act to stop employees fleeing. Retention bonuses for senior managers below director level, salary increases for others, and a fee of £750 000 per annum for the interim CEO, higher than his predecessor's salary, were all agreed. (2017.10.23 - RemCo - New CEO Terms and RemCo Minutes 2017.7.9)

Carillion continued to pay Richard Howson – who had been fired as CEO but kept on in a lesser role to prop up morale at the unravelling company – his contractual pay until the company became insolvent, despite suggestions in the RemCo minutes that other options may be available (RemCo Minutes 2017.9.7).

Rt Hon Frank Field MP, Chair of the Committee, said:

"It's greed on stilts, pure and simple."

Rachel Reeves, Chair of the Business, Energy and Industrial Strategy Select Committee, said:

"These RemCo papers are further evidence that when the walls were falling down around them, Carillion bosses were focussed on their own pay packets rather than their obligation to address the company's deteriorating balance sheets. While these directors could still walk off with bonuses intact, workers were left fearing for their jobs and suppliers faced ruin.
Carillion had a notorious reputation for late payments to suppliers. But while suppliers were waiting up to 120 days to be paid, Carillion directors were doing their upmost to ensure there was no impediment to their receipt of fat pay and bonuses. Finally, when even the Carillion RemCo considered asking for directors to return their bonuses, the system and culture was so dysfunctional, and the terms and clawback provisions so weak, that even this meek step was ruled out”.

The Committees have written to Alison Horner, formerly the Chair of the Carillion Remuneration Committee, with a series of further questions about the issues raised in these papers.

Further information

Image: Creative Commons (Elliot Brown)