Interserve’s chief executive Debbie White and chief financial officer Mark Whiteling have perhaps the toughest management jobs in the industry right now.
They have to stem losses on legacy contracts – most notably energy-from-waste projects.
They also have to maintain the confidence of investors and clients, and bring in the cash to pay off that £834m financing arrangement.
For this, they are being handsomely rewarded. Ms White received a basic salary of £216,667 for four months’ work in 2017, while Mr Whiteling took home a basic £101,250 for three months’ graft.
On top of this, Interserve’s remuneration committee stated in the company’s annual report that the two executives had demonstrated “exceptional progress” between September and December last year and gave them a 125 per cent bonus each.
This begs the questions: how has this progress been assessed and this conclusion reached?
On top of a basic requirement not to breach financial covenants, Interserve’s annual report set out Ms White’s three key objectives:
- Deliver a recovery plan involving the reorganisation of Interserve;
- Show leadership, instil confidence and cement relationships with key stakeholders;
- Appraise the current leadership team, identify skills gaps and start recruiting to fill them by the end of the year.
Something you might quickly note is that these are largely qualitative, which the remuneration committee acknowledged by saying it would carry out a “qualitative review” of the progress against the targets.
This review found that a turnaround plan had been approved and was “in the process” of being implemented, that stakeholders were more confident after meeting with Ms White, and that new senior appointments had been made.
So then, devising a plan, meeting stakeholders and recruiting some staff was judged “exceptional” progress by the remuneration committee and worth a bonus of £270,089 for Ms White. On similarly qualitative criteria, Mr Whiteling received a £126,562 bonus.
Setting executive bonuses that reward good performance appropriately while ensuring the long-term health of a business can be tricky.
To help with this, many corporations across all industries employ the SMART system for setting rewards. This approach stipulates that performance targets must be Specific, Measurable, Achievable, Realistic and Time-bound.
Let’s put Ms White’s objectives to the SMART test.
First off, I would say devising Interserve’s turnaround plan certainly has some specific end-results; less so with the other two goals.
But it’s when we come to the measurable bit that we hit some real problems.
Ms White’s objectives are not related to any quantitative performance on a sliding scale; instead, they rely on binary criteria such as producing a plan, and intangibles such as ‘confidence’ and ‘leadership’.
Given the nature of these measures, it would almost be harder not to achieve the goals, which in turn renders the achievable, realistic and time-bound criteria largely moot.
While the progress made by Ms White and Mr Whiteling from September to December last year may yet prove to be the foundation of a strong turnaround, four months is surely not enough time to draw that conclusion.
In its results for 2017, Interserve admitted there was “significant uncertainty” about how its EfW projects will progress this year and the firm’s share price has repeatedly failed to hold above 80p.
Ms White and Mr Whiteling both have generous base salaries and Ms White has been handsomely compensated for awards she forfeited at Sodexo when she joined Interserve.
It would have been smarter for the remuneration committee to have held off on the big bonuses until the long-term health of Interserve becomes clearer.