Carillion agreed to deposit Richard Howson’s share-related bonuses after his contract was terminated into an account that it would not have to disclose to shareholders, the Carillion joint inquiry has revealed.
Documents released by the business and work and pensions committee show that when Mr Howson stepped down as CEO following Carillion’s profit warning in July 2017, the company wanted to withhold share bonuses for the years 2015 and 2016.
These bonuses, which totalled more than 107,000 shares, could be claimed by Mr Howson four years after they were awarded: in 2019 and 2020.
Carillion said the award should not be made because he was “not a good leaver”.
Mr Howson contested this and argued he was entitled to the full salary, benefits and share bonuses that had been agreed.
A compromise was proposed by Deloitte, which served as adviser to the firm’s remuneration committee (RemCo) from 2008 onward.
Deloitte suggested that, rather than release the shares to Mr Howson directly, they be held in an escrow account with a “mitigating factor” allowing the committee to consider any losses incurred after 2017 before releasing the bonuses to him.
Deloitte said the use of an escrow account would not have to be disclosed in the directors’ remuneration report to shareholders.
It added that if the agreement “did become public knowledge” then Carillion could argue that it was under contractual obligation to pay Mr Howson the bonuses and that there was an option to limit the payout under the “mitigating factor”.
The remuneration committee agreed with this arrangement on 23 October 2017.
Deloitte had previously told the remuneration committee in September 2017 that its rules to clawing back bonuses were weak compared with other companies and would only be effective in very limited circumstances.
The committee began to consider changing clawback rules in September, but the MPs inquiry has said they had found no evidence that the rules were ever strengthened.
Business select committee chair Rachel Reeves said: “These RemCo papers are further evidence that when the walls were falling down around them, Carillion bosses were focused 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.”
Work and pensions select committee chair Frank Field said: “It’s greed on stilts, pure and simple.”
Ms Reeves added: “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.”
Internal documents also revealed that when Keith Cochrane stepped in as interim CEO in July 2017 he managed to secure a salary of £750,000 for the year – £90,000 more than Mr Howson received.
Mr Cochrane also asked the remuneration committee for the chance to earn a bonus for his work.
Deloitte proposed Mr Cochrane could earn a bonus worth 50 per cent of his salary in 2018 if he achieved certain goals, including refinancing the company and selling certain assets, which the committee agreed to.
Ms Reeves said: “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 utmost to ensure there was no impediment to their receipt of fat pay and bonuses.”
To try to provide extra stability after Mr Cochrane’s appointment, Carillion offered some senior staff bonuses for not quitting.
A ‘2017/18 Retention Bonus’ was offered on the condition that the person did not tender their resignation before 30 June 2018 and also achieved certain performance targets.
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Carillion agreed secret bonus account for Richard Howson