How do unprofitable firms pay excessive bosses' salaries?

[robinessex]

How do unprofitable firms survive and pay excessive bosses' salaries?

https://www.bbc.co.uk/news/business-51469002

Ocado boss Tim Steiner bags £54m bonus

"The boss of online shopping company Ocado has bagged a £54m bonus, despite his firm posting a bruising £214.5m loss last year.
Tim Steiner got the windfall after an incentive scheme tied to the firm's share price paid out. It comes on top of a further £4.7m in salary and other bonuses for Mr Steiner, bringing his total pay in 2019 to £58.7m. Some £88m will be shared among its top executives through the scheme".............continues

Can anyone explain this to me?

[RazerSauber]

I have no idea if it's the case in this instance but if the company has half a billion in free cash, this would only take a good chunk out of the free cash that they have. I'm sure it's much more complicated than that but posting a 1 year loss doesn't necessarily mean the company has no money to pay anyone.

[anonymous-user]

Unlikely to be a cash bonus, likely he's been given shares to the value of that amount. A quick google can neither confirm nor deny that though.

Also, his compensation package is linked to the share price which has improved.

Losses don't necessarily indicate poor performance, much of that loss comes as a result of a fire in one of their warehouses summer last year. It's likely that the insurance payout has not yet been settled, hence the reported loss. Losses could also be posted as a result of reinvestment to increase scale.

[robinessex]

They've had 3 years without a profit, yet the share price has zoomed up

[KarlMac]

Quite often because senior execs aren’t targeted on profit. It could be revenue, OTIF, market share, growth, share price etc...

Invariably this leads to short term business practices/behaviours that are detrimental to the companies long term stability. The shareholders will then appoint a new CEO to cut costs and return the company to profit and the whole sordid cycle begins again.

I used to think that people high up in firms and shareholding companies were pretty sharp, the more I’m exposed to them the more I realise that most of them demonstrate the Peter Principle and this is why the few genuinely good ones command such huge sums of money.

[anonymous-user]

robinessex said:

They've had 3 years without a profit, yet the share price has zoomed up

Reinvestment to increase scale/capacity can do that. Fronting money to create future growth. Clearly the market believes in their plan as the share price has increase from ~£2 to ~£12 in 3 years.

https://www.ocadogroup.com/sites/ocado-corp-v2/fil...

Page 106. The £54m is in share options, not cash.

[Reciprocating mass]

They don’t make profit because the directors Hoover it all up knacker the company then move on to the next company to do the same, then they come on here and tell us about all the ferrari mclaren and rare exotic watches they own

[robinessex]

So where does the cash come from? Are the banks propping them up?

[anonymous-user]

robinessex said:

So where does the cash come from? Are the banks propping them up?

Could be borrowing against share price, investment of profits. And as stated earlier the fire in a warehouse likely means an asset write down that's not yet been offset by the insurance payout.

[bunchofkeys]

Isn't it something along the lines of tax avoidance.
Little to no company profits = little to no company tax to pay?

[MB140]

I wonder if these top executives have something like my wife did when she worked for marathon oil.

Some of her annual income was in the form of shares in the company. These shares though were locked in (not sure on the correct term here),as in whilst they were hers she couldn’t sell them for x number of years. 3 I think in her case.

I wonder if these executives receive x million in shares but can’t just sell the whole lot in one go to get the cash value.

I’m sure it has tax ramifications and all sorts of other implications which is why my wife has an accountant to sort it all out.

[anonymous-user]

This is from 2018 but backs up my guess that they're reinvesting to increase scale.

https://ukinvestormagazine.co.uk/ocado-y89pu3ja/

The group attributed the profit loss to reinvestment in a technology platform for retailers, marking themselves out as the most innovative grocery delivery firm in the market.

“This is a transformational period for Ocado,” chief executive Tim Steiner said.

“We have developed unique and proprietary technology to offer retailers an end-to-end operating solution for grocery retail that enables them to meet the changing needs of consumers.

“In the past six months we have partnered with some of the world’s, biggest, best and most innovative retailers to help them redefine the shopping experience for their own customers. As a result, we are beginning to fulfil our ambition to change the way the world shops.

‘In order to fully capitalise on the opportunities ahead of us, we are working at pace, investing more and focussing sharply on execution to bring on new capacity in the UK and to achieve successful outcomes for our partners.

“We are confident that we have the ability to scale-up the business, deliver on our commitments and drive sustainability”, he concluded.

Edited by anonymous-user on Wednesday 12th February 09:32

[BishBosh]

Most issue more shares (dilute the company) then use this to pay directors salaries. Or give then their bonus in shares using the extra shares issued...

[tripplez]

More than likely a job perk where they get shares in the company every month/year. Looks like the share prices have still gone up 3x in the past 5 years even if they have dropped a bit now.

[CaptainSlow]

Sam.M said:

And as stated earlier the fire in a warehouse likely means an asset write down that's not yet been offset by the insurance payout.

Any write down would take into account any future insurance payouts. You wouldn't write down the loss in year 1 when the fire occurred and then reverse in year 2 when the insurance paid.

[anonymous-user]

CaptainSlow said:

Sam.M said:

And as stated earlier the fire in a warehouse likely means an asset write down that's not yet been offset by the insurance payout.

Any write down would take into account any future insurance payouts. You wouldn't write down the loss in year 1 when the fire occurred and then reverse in year 2 when the insurance paid.

I stand corrected.

[Otispunkmeyer]

MB140 said:

I wonder if these top executives have something like my wife did when she worked for marathon oil.

Some of her annual income was in the form of shares in the company. These shares though were locked in (not sure on the correct term here),as in whilst they were hers she couldn’t sell them for x number of years. 3 I think in her case.

I wonder if these executives receive x million in shares but can’t just sell the whole lot in one go to get the cash value.

I’m sure it has tax ramifications and all sorts of other implications which is why my wife has an accountant to sort it all out.

I thought if you had a lot of shares and also vested interest (i.e. you work there as well), then big share sell offs kinda have to be sign posted well in advance so you can't get called out for insider trading and you don't suddenly shift the share price/market with a big sell off.

[TriumphStag3.0V8]

MB140 said:

I wonder if these top executives have something like my wife did when she worked for marathon oil.

Some of her annual income was in the form of shares in the company. These shares though were locked in (not sure on the correct term here),as in whilst they were hers she couldn’t sell them for x number of years. 3 I think in her case.

I wonder if these executives receive x million in shares but can’t just sell the whole lot in one go to get the cash value.

I’m sure it has tax ramifications and all sorts of other implications which is why my wife has an accountant to sort it all out.

Many companies do that for senior management. I get shares and options as part of my bonus. I cannot do anything with them until they vest (1/4 every year for 4 years in our case). When they vest it becomes taxable, at the current share price.
Our company treats this as an increase to salary so is taxed under PAYE.

Most options are put into HMRC approved schemes where they are not taxable as long as not touched for 3 years. There is a formula to calculate their value if not, and of course any increase (the whole point of options) is taxed under capital gains.

[TriumphStag3.0V8]

bunchofkeys said:

Isn't it something along the lines of tax avoidance.
Little to no company profits = little to no company tax to pay?

Possible but unlikely. The shareholders would not like that as dividends would be low, plus the recipient would have to pay tax personally, which would likely be a higher rate than the corporation tax would have been, so better for the government coffers if so (not withstanding elaborate tax avoidance schemes which would seem unlikely in this case - well publicised bonus like this would pique the interest of HMRC).
Much more likely that the bonus is tied to growing revenue and volumes, reinvesting the profits in order to do so, with an expectation that profits will come soon.

Edited by TriumphStag3.0V8 on Wednesday 12th February 13:07

[TriumphStag3.0V8]

Otispunkmeyer said:

I thought if you had a lot of shares and also vested interest (i.e. you work there as well), then big share sell offs kinda have to be sign posted well in advance so you can't get called out for insider trading and you don't suddenly shift the share price/market with a big sell off.

In our organisation there are blackout periods where you cannot sell either side of an earnings announcement, couple of weeks before and a week after, also anyone at exec levels has to have any sale of any quantity approved (by the board in some cases) - obviously the same blackout periods apply.