The document compares the pay of two CEOs, one who increased profits significantly but took an 81% pay rise to £23m, while the other reversed losses, reduced debt, but took a 60% pay cut to £1.4m. It also analyzes executive pay trends in the food and drink sector, finding that CEO pay has increased substantially over the past 20 years while average worker pay has remained stagnant, leading to criticism of high executive pay packages.

1. 26 | The Grocer | 14 May 2016 Get the full story at thegrocer.co.uk
executive pay
Emma Weinbren
O
ne took a company on the brink of col-
lapse and made it profitable. The other
ranabusinessthatachievedmodestrev-
enue growth of 6%. One increased his
pay by 81% to £23m. The other took a
massive 60% pay cut. So which was which?
The answer defies common expectations. While
achieving growth in the current fmcg market is not
easy(andoperatingprofitsincreasedby4%)didReckitt
BenckiserCEORakeshKapoordeservetonearlydouble
his salary? His £12.3m pay in 2014 was hardly shabby.
Attheotherendofthescale,TheCo-operativeGroup
CEORichardPennycook’srewardforreversingthesoci-
ety’s misfortunes – returning The Co-op to profit and
reducing its debt by £51m – was a fraction of Kapoor’s
at £3.6m. Yet he will take a voluntary 60% pay cut
over the next year, earning him £1.4m (93% less than
Kapoor’s pay packet).
Ofcourse,thetwobusinessesareverydifferent.One
isaglobalfmcggiant.TheotheraUK-onlyretailer.But
coming in the same week, the contrasting media cov-
erage could not have been greater. While Pennycook
was almost universally praised, Kapoor came under
heavy fire, and 18% of shareholders voted against the
remuneration report last week.
Havefoodand
drinkfatcats
hadtheirfill?
Executive pay in food and drink has
bucked the economic downturn, but is
it time for companies to rethink how
much they pay the boss?

2. Get the full story at thegrocer.co.uk 14 May 2016 | The Grocer | 27
Therehasbeen“noreallet-up”intheriseofCEOpay
packets over the past 20 to 30 years, agrees independ-
ent think tank the High Pay Centre. Its analysis of pay
at 71 FTSE 100 companies showed 40 of these CEOs
had received an increase in their single-figure wage
from 2014 to 2015.
The food and drink sector is no exception. Among
the global fmcg companies (see box, p28), salaries
regularly venture into eight figures, though it’s worth
pointingoutKapoor’spaypacketexceedsthatofmuch
larger and more profitable firms.
The salaries of the top UK grocery retail bosses are
more modest – if seven-figure sums can be described
as such – but are generally on their way up. An analy-
sisofpayatthetop10retailers(seebox,p28)showsthe
average CEO took home £2.2m in 2014/15, compared
with £1.9m in 2013/14 – an increase of 16%.
The increases in pay packets haven’t necessarily
correlated with an increase in company profits. In the
caseofTescoCEODaveLewistheveryoppositeinfact.
Despitethedrasticmeasureshe’stakentoturnaround
the business, including a massive cull at head office,
theclosureofseveralstores,andanumberofnon-core
andforeigndisposals,hisfirstyearwillberemembered
for Tesco’s £6.4bn loss before tax in 2014/15 – the
Sohowdoesexecutivepayinthefoodanddrinksec-
tor compare with these two extremes, and has it spun
out of control?
Criticism of executive pay is nothing new. Reckitt
Benckiser has form here. The same thing happened
in 2009 when it paid Kapoor’s predecessor Bart Becht
£92m – a record salary in fmcg. But taking a pay cut is
a rarity among CEOs. Dan Price, CEO of Seattle-based
company Gravity Payments, was hailed as a pioneer
when he cut his own pay to give staff higher wages
back in November 2015.
TheRobinHoodmovecastanewlightovertheexec-
utive pay debate. Should companies take money from
their CEO salaries for the benefit of their employees?
And how can they complain about the national living
wage when top salaries often stray into eight figures?
The backlash against sky-high salaries extended
beyond the typical disgruntled unions and share-
holders, and to the City itself. Last month, a report by
the executive remuneration group – an independent
think-tank of five business heavyweights including
Sainsbury’s chairman David Tyler – suggested exec-
utive salaries had been recession-proof, pointing out
that they had more than trebled over the past 18 years
despite the FTSE trading at “broadly the same levels”.
“Negative
publicity
cancause
acompany
toloseits
reputation
intheblink
ofaneye”

3. 28 | The Grocer | 14 May 2016 Get the full story at thegrocer.co.uk
executive pay
secondlargestinUKcorporatehistory.Butthe£4.1m
he took home for his first seven months in the job –
£2.5mmorethanpredecessorPhilipClarkereceivedfor
the full 2013/14 financial year – was mostly the result
of a ‘golden hello’ in recompense for the share options
he forfeited when he joined from Unilever.
With his strategy now starting to bear some fruit
Lewis is expected to receive a bonus of £3m when his
remunerationisannouncedlaterthismonth.Butamid
the complex and often clandestine performance met-
rics devised by pay and remuneration boards, execu-
tive pay can bear little relation to the performance of
a company.
What do the CEOs at the supermarkets earn?
CEO, TESCO
Dave Lewis
Total pay: £4.1m
In the seven harrowing
months following his
arrival halfway through
Tesco’s 2014/15 year, in
which it went on to make
a £6.4bn loss, Lewis
received a basic salary of
£570,000. His package
was boosted by a £3.3m
‘golden hello’ to buy out
share options. Lewis’
remuneration for 2015/16
was not available when
The Grocer went to press
but Sky claims the bonus
element will be £3.1m.
CEO, ICELAND
Malcolm Walker
Total pay: £3.8m
Profits at Iceland took a
48% tumble in 2014/15
to £87.7m. But Walker
awarded himself a pay
rise of £5,000 – making
him the second highest
paid of the top 10 food
and drink retailers. His
salary is equivalent to
over 4% of the compa-
ny’s profits – the highest
apart from Pennycook’s
(right). On the other
hand he was a big and
early supporter of the
national living wage.
CEO, THE CO-OPERATIVE
Richard Pennycook
Total pay: £3.6m
Pennycook received a
basic of £1.25m in 2015
for his work to turn
around the struggling
society, reducing the
company’s debt by £51m
and producing under-
lying profits of £81m. A
hefty bonus was heav-
ily criticised, and with
the business in “calmer
waters”, Pennycook will
reduce his basic salary
to £750,000 in July 2016
and reduce his bonus
maximum.
CEO, MORRISONS
David Potts
Total pay: £2.3m
The man tasked with
saving Morrisons earned
£850,000 in basic pay
and 73% of his maxi-
mum bonus opportu-
nity, in 2015/16, which
took his salary to £2.3m.
That’s less than his pre-
decessor Dalton Phillips,
whose £2.1m pay in
2014/15 was further
boosted by a £1.1m pay-
off. Potts also waived
the board’s suggestion to
increase his basic pay by
2.5% next year.
CEO, ASDA
Andy Clarke
Total pay: £1.7m
Asda’s most recent fig-
ures relate to 2014, when
Clarke took home £1.7m.
This represented a 4%
cut on his £1.8m 2013
salary, presumably the
result of the 1% dip in
sales to £23.2bn. With
sales since 2014 going
into freefall, this logic
would suggest Clarke’s
bonus will fall further,
though Asda’s CEO has
focused on preserving
profits and closing the
discounter price gap.
AndwhatreallygratesisthatCEOpayrisesaregoing
against the grain, with wages in non-executive posi-
tions“stagnating”,saystheHighPayCentre.“Whereas
20 years ago a typical FTSE 100 boss received about
40 times what an average UK employee got paid, that
figure is now over 180 times,” says director Stefan
Stern.Hebelievesthediscrepancyislikelytobe“even
greater” at supermarkets than the average company.
Unitesaysmostsupermarketworkersare“strugglingto
getby”onthenationallivingwageof£7.20,whileCEOs
are“fillingtheirboots”.Itsendsa“verybadmessage,”
saysUnitenationalofficerforfoodanddrinkJuliaLong,
whoaddsthat,overall,UKworkerstakehome£40less
a week than in 2010.
Soshouldcompaniestakeheedofthiswideningpay
gap when setting executive salaries? Yes, says Claire
Salmons, MD of The PR Doctor. “Negative publicity
can cause a company to lose its reputation in the blink
of an eye, which can impact on finances, destroy trust
betweenacompanyanditscustomers,staff,suppliers.
It’snounderstatementtosayitcouldultimatelyunder-
mine the whole business.”
Andinasurveyof1,030adultscommissionedbyHR
bodyCIPD,sixin10saidhighCEOsalariesundermined
employee motivation.
Conversely Pennycook’s decision to take a pay cut
has resulted in a “very positive” reaction among staff
and investors and was described by chairman Allan
Leighton as “the Co-op difference in action, as we
championabetterwaytodobusinessforourmembers
WHAT DO CEOS EARN AT THE GLOBAL FMCG GIANTS?
BRAND CEO EARNINGS SALESRATIO PROFITRATIO
Annual(£) SALES % EBIT %
ReckittBenckiser Rakesh Kapoor £23.2m 8.9bn 0.30 2.2bn 1.00
PepsiCo Indra Nooyi £18.1m 63.1bn 0.04 9.9bn 0.27
Mondelez Irene Rosenfeld £13.5m 29.6bn 0.07 8.9bn 0.22
ProcterGamble Alan Lafley £12.5m 76.3bn 0.02 11.8bn 0.16
Coca-Cola Muhtar Kent £10m 43.7bn 0.03 26.3bn 0.06
TysonFoods Donnie Smith £8.6m 41.4bn 0.03 2.2bn 0.58
Nestlé(CHF) Paul Bulcke £7.9m 88.8bn 0.01 11.8bn 0.09
ArcherDanielsMidland Juan Ricardo Luciano £6.5m 67.7bn 0.01 1.8bn 0.52
Unilever Paul Polman £8.3m 53.3bn 0.02 £7.5bn 0.11
ABInBev Carlos Brito £2.3m 43.6bn 0.01 16.8bn 0.02
AVERAGE £9.8m
Notes:Earningshavebeenconvertedtosterling,butsalesandprofitsareinthenativecurrency.
“It’stheCo-op
differencein
actionaswe
championa
betterwayto
dobusiness”

4. Get the full story at thegrocer.co.uk 14 May 2016 | The Grocer | 29
While the group stopped short of suggesting a cap
on earnings it branded payment policies in UK listed
companies“notfitforpurpose”andcriticisedthecon-
tinuous rise in top-level salaries. And it said penalties
should apply to CEO salaries where the company had
performed poorly, while remuneration structures for
executive directors should be able to apply to other
employeesintheorganisation.LegalGeneral,whose
CEO Nigel Wilson was part of the group, went further
and argued company chiefs should be forced to dis-
close how many times larger their own pay packets
were than the average of their employees – a policy
the John Lewis Partnership has applied (see above).
Significantly, the report got the backing of the
InstituteofDirectors(IoD),whosemembershipincludes
CEOsofmultinationalorganisations.Thissuggeststhe
tide is turning against sky-high executive pay, even
among CEOs themselves. IoD director general Simon
Walkersaysitis“increasinglyclear”thereisaproblem
with top pay levels at large listed companies and the
“current approach to remuneration is failing”.
It is a bold statement, but it sums up the anger and
exasperationamongshareholders,employeesandthe
public. Instead, there is a move towards greater trans-
parency and accountability. Sainsbury’s CEO Mike
Coupe–thelowest-paidbigfourCEO–notedlastweek
thesupermarket’spolicyoftransparencyhadresulted
in 99% of the board voting in favour of his remunera-
tion. And as Walker says, revamping executive pay
polices could go “a long way to restoring trust”.
JLP won’t reveal details of
Mark Price’s remuneration
as he was not the highest
paid director, but the
Waitrose MD left in April
and received a payoff
totalling £1.9m.
CEO, ALDI
Matthew Barnes
Total pay: £1.6m
Barnes’ pay for 2014,
which is the most recent
figure available from
Companies House, rep-
resented a 16% increase
on his 2013 pay packet
of £1.4m. The rise was a
reward for a stellar per-
formance for Aldi in 2014
(resulting in his promo-
tion to CEO in November
that year), with sales
increasing by a whop-
ping 31% to £6.9bn,
though pre-tax profits
fell by 4% to £251m.
CEO, SAINSBURY’S
Mike Coupe
Total pay: £1.5m
Coupe’s salary for
2015/16 isn’t out yet, but
99% of the board voted
in favour of his remuner-
ation in 2014/15. That’s
because – with trans-
parency and fairness at
the heart of chairman
David Tyler’s approach
– Coupe received nei-
ther a cash bonus nor a
three-year performance
bonus, though he was
awarded £458,000 in
deferred shares on top of
his £1.05m basic.
CHAIRMAN, JOHN LEWIS
Charlie Mayfield
Total pay: £1.5m
John Lewis did not dis-
close the annual pay of
former Waitrose boss
Mark Price, but the high-
est paid director, Charlie
Mayfield, took home
£1.5m. His package is
constrained by a com-
pany policy – called rule
63 – which stipulates
his basic pay should
not exceed 75 times that
of non-management
employees. His £941,000
basic is 66 times the
average.
UK MD, LIDL
Ronny Gottschlich
Total pay: £970,000
Gottschlich is a man on
the make. Although he
is one of the lowest-paid
UK food retail bosses,
his pay has increased by
129% since 2013, when
he earned £423,000.
The dramatic increase
is a sign of Lidl’s grow-
ing popularity: the dis-
counter reported sales of
£4bn in 2014. Sales for
2015 are not out yet but,
if Gottschlich’s pay hike
is anything to go by, they
are very positive.
CEO, FARMFOODS
Eric Herd
Totalpay:£425,000
Little is known about
the Farmfoods boss –
he is so secretive even
a request for his pic-
ture was declined. What
we do know is that
Farmfoods’ pre-tax prof-
its grew from £15m in
2013 to nearly £21m in
2014, while his remuner-
ation remained stagnant
at £425,000. Then again
with a reported 84%
stake The Sunday Times
estimates his wealth at
£230m.
and their communities”. Combined with an 8.5% pay
increase for in-store employees last year, the society is
putting a strong emphasis on its “fair reward policy”.
The aim is to ensure its 70,000 employees feel recog-
nisedfortheirwork,whichshouldinturnboostmorale.
Decisivemove
So will others follow suit? “Pennycook’s pay cut was a
decisiveandeye-catchingmove,”saysRajMehta,head
of EMEA commerce and industry at recruitment com-
panyEximius,butgenerallyboardsarepreparedtopay
abovetheoddstotemptthebestcandidatesforthetop
role.“Thosethatcommandthehighestsalariesarethe
oneswhobringsomethingdifferenttothetable,”Mehta
says.Hebelievessome“payforthemselves”byinspir-
ing positive change in their businesses.
And although Mehta believes executive pay may
have gone “too far” in some cases, he believes a “lot
of the backlash over executive pay is driven by a lack
of visibility” with the board “failing to communicate”
the reasons for its remuneration policies even where
they are justified.
Thislackoftransparencywasakeysentimentbehind
the executive remuneration group’s report in April. It
called for pay committees to follow basic principles:
transparency, shareholder engagement, accountabil-
ity and flexibility. It added that remuneration should
be “tailored to the individual needs of the company”
and everyone should understand how measures such
as bonuses were calculated.