🔒 WORLDVIEW: Here’s why Woolworths CEO’s R191m package is all wrong

In the last five years, Woolworths CEO Ian Moir earned around R191m. For those of you keeping score at home, that’s pretty close to R40m a year. Nice work if you can get it.

Now, some may argue that, in a world of freely negotiated employment contracts, Moir’s pay package is nobody’s business but his (and, of course, Woolworths’). If he managed to talk the board into paying him at that rate, well, good for him.

But here’s the thing – in that same period, shareholders have taken a horrible, icy cold bath. The Woolworths share price has more or less halved since its 2016 highs of over R105, thanks mostly to a disastrous foray into high-end retail in Australia, in the form of the acquisition of department store chain David Jones.
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In a way, the acquisition is almost a textbook study in bad decisions. For a start, Woolworths bought into the department store business in Australia at more or less the precise moment when department stores around the world began to collapse in the face of changing consumer behaviour. Around the world, department stores have been closing down as customers abandoned them in favour of online shopping, fast fashion, and specialty retailers. Woolworths picked this moment to expand into the space.

Woolworths also managed to overpay to a shocking extent. Since completing the acquisition in 2014, the company has written down its David Jones business by around R11bn, suggesting that the R21.5bn sale price was pretty wide off the mark.

In other words, in the five years since demonstrating seriously bad judgement, not to mention a fundamental lack of understanding of how retail is changing, Moir has earned one of South Africa’s more attractive CEO pay packages.

And this is where the trouble comes in. Capitalism is experiencing a fairly serious credibility crisis. In many countries, surveys show that a majority of people believe that capitalism is a failed or unfair system. Indeed, even in America, the spiritual home of the free market, less than half of young people view capitalism positively. They prefer socialism by a margin of around 6 percentage points.

The reason for this credibility crisis is obvious. The financial crisis demonstrated, very clearly, that the financial system was not operating in our best interests. People were making billions on bad, dangerous bets, and when everything fell apart, taxpayers had to carry the can. Since then, economic growth has been disappointing, most people’s incomes have stagnated, and the gap between the rich and the poor has grown to nosebleed proportions.

It’s not just in SA that people are looking at the market system with a jaded eye. But in SA, where inequality is among the worst in the world, growth is non-existent, and jobs are the preserve of just the lucky few, the problem is even bigger.

In this environment, seeing some guy earn millions for making a total mess of his job is naturally galling. If a restaurant employee set fire to the building, that person would find themselves out of a job. Moir set fire to half the value of Woolworths and has been paid handsomely for it.

The Woolworths board is clearly at fault here. Boards, and especially remuneration committees, have a responsibility to serve the interests of shareholders. It’s not clear how hiring Moir served shareholders, and it’s even less clear how keeping him has served them.

But more than that, the board of a public company – any public company – has a responsibility to make the system work. Allowing poor leaders who make bad decisions to stay in their positions and paying them well to do so sets a bad precedent for the whole system. Is it any wonder that South Africans look at stories like the tale of Woolworths and ask themselves if this whole capitalism malarkey is all it’s cracked up to be?

CEO compensation is one of the flash points of our time and when the next global recession hits, criticism is only going to grow.

Some argue that sky high pay is necessary to ensure that talented leaders take up the top jobs. When those leaders drive their companies into the ground, however, this argument looks ridiculous. Even a casual analysis of CEO pay data shows that there is no link between pay and performance. In fact, in a shocking number of cases, pay is inversely related to performance – the worst CEOs are the best paid in some industries.

Leaving aside questions of ethics and fairness, high pay for bad work is a bad practice, and it is undermining the very system that has enabled it. The last time America reached its current levels of inequality was the Gilded Age of the 1920s. Look at how all that ended.