The Evolution of Executive Pay at Sanderson Design Group
Performance-related pay has long been a controversial topic in the world of corporate governance. The idea behind it is simple: tie executive compensation to shareholder returns. Sanderson Design Group (SDG), a luxury interior furnishings company known for its iconic William Morris wallpapers, is no stranger to this concept. In the past, SDG awarded its executives with nil-cost options based on various performance conditions such as total shareholder return, earnings per share, revenue, and free cash flow.
However, in 2020, the company decided to revamp its executive pay structure. The remuneration committee opted for restricted shares instead of performance shares, citing that this new approach would better align executives with shareholder interests. Unlike performance shares, restricted shares do not come with performance conditions, meaning executives stand to benefit solely from the company’s share price performance.
Under the new system, executives like CEO Lisa Montague saw a reduction in the initial award of shares. While this may seem like a more straightforward method of compensation, the board introduced “robust underpins” to ensure that executives meet certain targets related to sustainability, free cash flow, and adjusted profit. However, the specific targets were kept confidential, leading to speculation among shareholders.
Despite the introduction of underpins, issues arose when the targets proved to be overly ambitious, especially in light of external economic challenges such as the Ukraine war and inflation. The committee had to make judgment calls on whether to scale back the share awards based on the performance against these undisclosed targets.
As a result, the company faced criticism from investors who questioned the transparency and fairness of the executive pay structure. The seemingly arbitrary vesting of shares raised concerns that management was prioritizing their own interests over those of shareholders. Additionally, while the share awards did not require cash outlay, they did result in dilution for existing shareholders as new shares were issued.
Looking ahead, Sanderson Design Group may need to reconsider its pay policy to address these concerns. While the intention was to simplify executive compensation, the current system has only led to confusion and skepticism among stakeholders. As the company navigates through challenging market conditions, a more transparent and equitable approach to executive pay may be necessary to regain investor trust.
Conclusion
Despite being a reputable company in its industry, Sanderson Design Group’s executive pay structure has come under scrutiny due to stumbling profits and perceived lack of transparency. As the company faces ongoing challenges, a reassessment of its pay policy may be in order to ensure alignment with shareholder interests and restore confidence in its leadership.