March 12 2014 Latest news:
Friday, July 20, 2012
Capitalism has come in for a prolonged, and in many cases deserved, bout of criticism recently. The criminal actions of corrupt or incompetent bankers have been covered ad nauseam so there’s little need to go over old ground again.
Meanwhile, the behaviour of several high profile chief executives and their handily compliant remuneration committees gave rise to a “shareholder Spring”, a spontaneous, angry eruption by ordinary shareholders which resulted in a number of company chiefs rejoining the real world.
The common threads which attaches these two groups are greed and avarice. Indeed, it’s ironic that the conduct of “fat cat” bankers and some equally gluttonous chief executives has contributed to an argument which undermines, rather than threatens, capitalism. If we’re not careful, however, all business leaders are in danger of being portrayed in the same manner as bankers, ie covetous and grasping.
Thankfully, not all captains of industry are like this; in my experience, the overwhelming majority are the complete opposite.
Take Mike Ashley, a man of the people if ever there was one, invariably spotted resplendent in a Newcastle United football shirt which looks several sizes too small for him. Ashley, who owns 70pc of retailer Sports Direct, is the archetypal self-made man, a guy who left school and set up a business which made him a billionaire. He neither benefited from inherited wealth nor the old school tie network and this, perhaps, explains his astonishing success – which he has shared with his staff.
After floating in February 2007, Sports Direct initially endured a torrid time, but Ashley held firm and adapted to the stock exchange’s myriad rules and regulations while countering the debilitating impact of a burgeoning financial crisis.
The company’s figures speak for themselves. The shock of pre-tax profits falling by more than £100m in 2009 has been absorbed and acted upon; the firm’s profits in 2010 and 2011 returned to their £119m level and analysts are forecasting pre-tax profits in excess of £200m next year.
But how has this been achieved at a time when the high street is on its knees?
Back in 2009, Mike Ashley realised he had to incentivise the people at the sharp end, ie staff working in his 400-odd Sports Direct shops. He did so in spades by introducing a bonus scheme designed to handsomely reward those responsible for driving profits.
It transpires that more than 2,000 members of his staff now each own up to 17,000 Sports Direct shares worth in excess of £50,000. Since 2009, every time profit forecasts were met, or in most cases broken, staff members received additional shares.
Next month, those that want to may sell up to 5,000 shares and pocket around £15,000. As Sports Direct shares have risen by 40pc so far this year, one wonders whether there will be a rush by staff to cash in their shareholding.
Mike Ashley plans to introduce a second staff bonus scheme starting in 2015, assuming his company’s sales and profits continue to exceed targets.
Incentivising staff is always a great idea as it develops loyalty and a sense that, to use a rather hollow-sounding popular phrase, “we’re all in this together”.
Other capitalists take note.
Poultry giant Bernard Matthews aims to remove its energy costs in two years after securing a £24.5m biomass boiler deal.