LONDON — COVID-19 has upended Burberry’s salary and bonus structure for the most recent and current fiscal years, while the company has also re-jigged its pension policy and executive share plans to align them with those of its luxury peers.
Burberry revealed in its latest annual report, which was published last week, that the coronavirus has had a drastic impact on salaries and bonuses in the last fiscal year, 2019-20, while the company will continue to feel the reverberations from lockdown and store closures in the current year. Burberry’s fiscal year ends on March 31.
As reported, Burberry rejected the British government’s help in the wake of the coronavirus, maintaining base pay for all employees unable to work remotely, and slashing top bosses’ salaries by 20 percent for the April-to-June period.
The company’s chairman and the non-executive directors did likewise with their fees, and the equivalent cash amount from that reduction has been donated to the Burberry Foundation COVID-19 Community Fund.
In the annual report, Burberry said because incentive targets for fiscal 2019-20 had not been met due to store closures worldwide, there will be no bonus payments for the company’s executive directors, and 2017 awards under the Burberry Group plc Executive Share Plan 2014 will not vest.
In addition, senior staff, including chief executive officer Marco Gobbetti and chief operating and financial officer Julie Brown, will not receive a salary increase for the current 2020-21 fiscal year.
According to the report, their salaries will continue to be 1.14 million pounds, and 725,500 pounds, respectively. There will also be no increase in fees for the chairman or the non-executive directors this year.
The criteria for annual bonuses have also been modified in the wake of COVID-19. In the current fiscal year, the maximum annual bonus that can be earned will be limited to 50 percent of base salary, or one-quarter of the usual 200 percent.
The remuneration committee said it would determine the annual bonus for fiscal 2020-21 at the year-end next March, “taking into account performance against strategic objectives set around the company’s response to, and recovery from, COVID-19.”
The committee will look at Burberry’s cost mitigation program; working capital management; supply chain management, and its strategy to build a more sustainable future, primarily focusing on product sustainability and carbon reduction, as well as overall business performance and shareholder experience.
In addition to the changes to salaries and bonuses, Burberry has recast its executive share plan program and its pension scheme in an attempt to bring the company in line with its luxury peers, and with other U.K. companies of similar size and status.
In the annual report, the remuneration committee argued that the new and “restricted” plan, known as the Burberry Share Plan, “fits better with the characteristics of the luxury industry,” compared with a traditional long-term incentive plan.
“Many of our global competitors — predominantly non-U.K. based, and privately owned businesses — use restricted shares to reward their leaders,” the committee said.
Under the new plan, executive directors will receive awards with a lower value than under the original plan. Those awards will also be subject to performance “underpins,” according to Burberry.
The committee said the new plan is better because it prevents executives from potentially making moves that “only enhance short-term revenues and profit, such as expanding distribution into non-image-building stores or the use of excessive discounting, which can be damaging for the brand and long-term value for shareholders.”
The committee believes the new plan will encourage management to focus on “executing the transformation strategy to position Burberry firmly as a luxury brand; to provide the flexibility to make the right investments at the right time, and to discourage the use of [certain moves] to increase revenue and profit in the short-term at the expense of the long-term shareholder experience.
The maximum award under the new policy for the ceo will be 162.5 percent of salary and the maximum award for the chief operating and financial officer will be 150 percent of salary. This is half the level of awards under the current share plan, and reflects “best practice and shareholder expectations,” Burberry said.
The new Burberry Share Plan awards will not pay out if the company has underperformed and if vesting is not justified. Awards will be subject to a holding period so that the total time horizon before any potential sale of shares is five years for the entire award.
Burberry also plans to reduce its pension benefits for executive directors, bringing them in line with the rates available for the wider workforce.
The maximum pension allowance for any new executive director appointments to the board is being further reduced to align with the maximum employer pension contribution rate available to the majority of the U.K. workforce, or 6 percent of salary.
The new measures will be voted upon during Burberry’s annual general meeting next month in London.
As reported last month, COVID-19 dragged down sales and profits at Burberry Group in fiscal 2019-20, but the company said it was already seeing a “strong rebound” in some parts of Asia, and its balance sheet was robust enough to push through the difficult times.
Revenue in the 12 months to March 31 was down 3.2 percent to 2.63 billion pounds at constant exchange, and fell 4 percent at actual rates. Reported operating profit, calculated with new accounting measures, fell 57 percent to 189 million pounds.
The company declined to offer any outlook for the current year, but it said the first quarter would be badly impacted by store closures.