Carillion bosses demonstrated “greed on stilts” by apparently being more concerned about remuneration for top executives than looking for signs of the contractor’s impending collapse.
That’s the claim by MPs heading the Carillion inquiry, as they published papers from the Carillion Remuneration Committee (RemCo).
The inquiry, which is made up of MPs from the Work and Pensions Committee and the Business, Energy and Industrial Strategy (BEIS) Committee, said that the papers demonstrated how Carillion had set out highly restricted circumstances in which bonuses could be clawed back from directors.
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They also offered evidence of how the business handed out bonuses and salary increases to senior management to stop them from fleeing as the business began to fail.
Minutes from RemCo meetings detailed how, as Carillion started to issue profit warnings, it acted to stop employees leaving by offering retention bonuses for senior managers below director level and salary increases for others.
The RemCo also offered a fee of £750,000 a year for the interim chief executive Keith Cochrane, which was higher than his predecessor’s salary.
Carillion also continued to pay Richard Howson, who had been fired as CEO but kept on in a lesser role to “prop up morale” at the failing business.
This was despite suggestions in RemCo minutes that other options may have been available.
Meanwhile, restrictions on how the RemCo could claw back bonuses meant that even when it did consider the option, it was difficult in practice to do so and that in some circumstances it failed to enforce clawbacks.
The RemCo considered clawing back bonuses in February 2015 but ruled out extending this beyond a handful of directors because of concerns that to do so would affect the company’s future performance if contract-related bonuses were taken back when the contract turned out not to be worth what had originally been stated.
Meanwhile, Carillion’s remuneration advisors Deloitte noted when offering advice to Carillion on clawback in September 2017 that the already weak provisions didn’t allow for any bonuses paid out in cash to be clawed back at all.
In September 2017, after Carillion’s first profit warning, the RemCo “finally looked again” at the clawback conditions, according to MPs, and agreed to extend to instances including serious reputational damage and failures of risk management.
But the MPs said they had seen “no evidence” that the RemCo sought to enforce these new conditions, despite the “dire state” of the company’s finances at that point.
The RemCo did, according to its minutes, consider asking directors to return their bonuses from 2016, but the “weak and restricted terms” already made this impossible.
The MPs added that they had seen no evidence to suggest any further attempts to return cash from bonuses to the business.
The inquiry also offered evidence that shareholders, including BlackRock, tried to limit the level of bonuses paid to directors in 2016.
Blackrock met an attempt by Carillion to increase the maximum bonus level to 150% of salary with resistance, forcing the company to back down to 100% of salary as a maximum bonus pay-out.
Rachel Reeves, chair of the BEIS Committee, said: “These RemCo papers are further evidence that when the walls were falling down around them, Carillion bosses were focussed on their own pay packets rather than their obligation to address the company’s deteriorating balance sheets.
“While these directors could still walk off with bonuses intact, workers were left fearing for their jobs and suppliers faced ruin.
“Carillion had a notorious reputation for late payments to suppliers. But while suppliers were waiting up to 120 days to be paid, Carillion directors were doing their upmost to ensure there was no impediment to their receipt of fat pay and bonuses.
“Finally, when even the Carillion RemCo 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.”
Frank Field, chair of the Committee, added: “It’s greed on stilts, pure and simple.”
