Rachel Millard — This is Money Jan 12, 2018
Troubled engineer Carillion introduced tougher rules that protect bonuses paid to bosses – just months before it was embroiled in an accounting crisis that wiped £600million off its shares.
The firm changed the wording of its pay policy to make it harder for investors to claw back bonuses paid to executives in the event it ran into financial difficulty.
In recent days Carillion has been under pressure from investors to recoup some of the millions of pounds in bonuses paid to former chief executive Richard Howson and ex-finance chief Richard Adam when they were in charge.
A probe by the Mail has found that previously bosses could have been forced to hand back their annual bonus and share awards in ‘circumstances of corporate failure’.
But in the group’s 2016 annual report this wording was tightened.
It says deferred bonuses may be reduced in circumstances of corporate failure but goes on to say the so-called ‘malus’ and ‘clawback’ provisions can be applied in two circumstances: if results have been misstated or the participant is guilty of gross misconduct.
Essentially, this means that executives would have to be guilty of fraudulent behaviour rather than just the more general failure of the firm.
Carillion – which builds and maintains schools, hospitals, barracks, roads and railways – has seen more than 70 percent wiped off its value since July 10 when it suddenly announced a £845million write-down and suspended dividends.
Carillion wrote down £375million mostly on three troubled public-private finance partnerships in the UK, and £470million on overseas contracts.
Bosses suspended dividends to save £80million for the year and said all options were under consideration as part of a review of the business.
Analysts also warned on the firm’s ballooning £800million pension deficit and debt of £1.4billion.
The changes to clawback rules, if interpreted as being a higher bar, could save bosses millions.
Howson, 49, stepped down from his role as chief executive on the day of the disastrous trading update. He had been in the post since 2009.
He is still with the company as chief operating officer but is due to leave next year. He has made £1.9million in cash and share bonuses during his tenure, only not getting an award in 2012, according to Mail calculations.
Last year he pocketed a £245,000 bonus in cash and shares as well as a £346,000 long-term incentive award.
Adam, 59, has had up to £2.6million in extra cash and shares since starting in 2006, according to Mail calculations.
Last year he was handed a bonus of £140,000 and long-term incentive awards worth £278,000.
After leaving Carillion in December 2016, he faced a revolt from shareholders at First Group when he joined the transport company’s board. More than a fifth opposed his appointment.
Carillion is still one of the most shorted stocks on the market, suggesting investors are expecting worse to come. But shares closed up 3.7 percent yesterday, or 1.6p, at 44.76p.
The company declined to comment.