Eyebrows were raised last week by Andrew Lynch’s decision to accept a £114,000 bonus from Compass Group, despite the group issuing a shock profits warning in September.
The former group finance chief, who was last year promoted to chief executive of subsidiary Select Service Partner, was one of only four directors to take up the offer of a bonus.
While Compass paid out £881,000 in total, the vast majority was paid to Alain Dupuis, chief executive of Compass Group’s Asian and Australian division, who was on a different bonus structure.
Directors at the group saw almost 40% wiped off their 2004 pay deals compared to 2003, and only four directors received a bonus of any kind.
Both the company’s executive chairman, Sir Francis Mackay, and chief executive, Michael Bailey (pictured right with Lynch), declined the offer of a bonus, because they did not feel it was appropriate.
Lynch was appointed chief executive of Compass’s Select Service Partner division a year ago. And despite his £114,000 bonus paling compared with his £510,000 2003 bonus, investors are likely to feel aggrieved at what on the surface appears like another example of a reward for failure.
Lynch learned his trade at Big Four firm KPMG, but left in 1984 to join Prudential. He remained there for five years before joining Travellers Fare as finance director in 1989. The former British Rail outfit was later bought by Compass, and Lynch has been with the group ever since.
Compass Group argues that the bonuses paid to its directors are protected by a rigorous testing structure, which is based on a number of criteria being met that the remuneration committee ‘considers contributes most to increasing shareholder value and meeting corporate objectives’.
Four measures are taken into account – turnover growth, EPS growth, improvement to the return on capital employed and working capital movement. If only one of the measures is met by the executive director, he or she is entitled to just 25% of their overall budget.
Comfortably sitting at 323p on 7 September last year, the group’s shares dropped to 239.25p overnight, following the profits warning.
As Accountancy Age went to press, the share price remained around the 247p mark.
Lynch’s leadership of Select Service Partner is likely to attract keen interest from the rest of the board as well as investors. At 56 years old, Mike Bailey, group chief executive, is slowly approaching retirement.
Should Lynch prove his worth at Select Service Partner, he would be the obvious choice of successor at the parent company. He certainly seems ambitious enough.
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