Carillion bosses have been accused of demonstrating “greed on stilts” by worrying more about “fat pay and bonuses” for bosses than looking out for signs of trouble before the company collapsed.
MPs investigating the failure of the government contractor released reams of fresh evidence on Monday showing how Carillion sought to boost and protect the rewards for its top executives despite the dire state of its finances.
Publishing minutes of the company’s remuneration committee, which set pay and bonuses for senior managers, MPs said Carillion’s directors were “doing their utmost to ensure there was no impediment to their receipt of fat pay and bonuses”.
Frank Field, the Labour chair of the work and pensions committee, which is investigating Carillion’s collapse, said: “It’s greed on stilts, pure and simple.”
Rachel Reeves, chair of the commons business select committee, said: “These [remuneration committee] papers are further evidence that when the walls were falling down around them, Carillion bosses were focused on their own pay packets rather than their obligation to address the company’s deteriorating balance sheets.”
According to the documents, the remuneration committee did at one point consider asking directors to return their bonuses as problems began to mount for the firm in September last year. However, the terms and conditions they had given to the rewards were too weak, rendering clawback impossible.
“When even the Carillion RemCo [remuneration committee] considered asking for directors to return their bonuses, the system and culture was so dysfunctional, and the terms and clawback provisions so weak, that even this meek step was ruled out,” Reeves added.
What went wrong for Carillion?
Carillion relied on major contracts, some of which proved much less lucrative than it thought.
Earlier this year it slashed the value of them by £845m, of which £375m related to major public-private partnerships (PPPs) such as Royal Liverpool University hospital.
As its contracts underperformed, its debts soared to £900m.
The company needed a £300m cash injection, but the banks that lent it money refused to put more in.
The government also refused to step in and bail the firm out.
That left the company unable to continue trading and forced it to go into liquidation.
Photograph: Tolga Akmen/AFP
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When considering clawbacks – an arrangement for retrieving executive rewards in the event of poor performance after a bonus has been paid – the board opted to rule out extending the use of the device beyond a handful of its most senior directors. The papers show the remuneration committee feared more conservative pay arrangements for particular contracts “would have a detrimental impact on performance”.
The trove of information from the select committees also shows that Carillion’s adviser, Deloitte, said in September that weak provisions didn’t allow any bonuses paid in cash to be clawed back at all.
The remuneration committee extended its clawback conditions to cover serious reputational damage and failures of risk management around that time, however, the MPs said they had seen no evidence to suggest any further attempts were made to return cash from bonuses to the business.
The latest swathe of evidence against the company comes amid the continuing fallout of Carillion’s collapse in January with debts to its 30,000 suppliers worth about £2bn.
Vaughan Engineering, a family-owned company with staff in Edinburgh, Warrington and Newcastle owed money by Carillion, revealed last week that hundreds of jobs were at risk. The company founded in 1955 could be the construction giant’s first supply chain victim to fall into administration.
The remuneration committee papers published by MPs also show the company sought “to increase the maximum bonus opportunity” in August 2016, despite a growing revolt among shareholders at the way the firm was setting pay for senior managers.
Richard Howson, who headed the company from 2012 until July 2017, pocketed £1.5m in 2016, including a £122,612 cash bonus and £231,000 in pension contributions.
In the face of the investor feedback, Carillion’s response was to “rebadge” the bonuses rather than make any fundamental change, the papers show.
The company also attempted to increase the maximum bonus level to 150% of pay in 2016, although it was forced to back down to 100% by shareholders, including the investment management giant BlackRock, which had expressed concerns.
Carillion also increased its use of retention bonuses and raised the pay of some managers to prevent them leaving as the company started to issue profits warnings, the papers show.
It has already been revealed that Carillion’s former chairman Philip Green had only a “tenuous grasp” on the crisis in the firm’s finances, and was working towards an “upbeat announcement” to the City just five days before unveiling a £845m writedown.