You have to get things pretty wrong to upset nearly 40% of your shareholders, as the board of Thomas Cook managed to do last week. I would nominate the whole Thomas Cook board for a dose of leadership training as well as ask them to reflect long and hard on their responsibility to shareholders.
Their crime? Trying to re-write the bonus rulebook and treat the impact on the Thomas Cook share price of the Icelandic volcano as an “exceptional event”. This enabled the Thomas Cook remuneration committee to justify increasing share allocations to 100 of the companies top managers including, surprise-surprise, the chief executive Manny Fontenla-Novoa. According to the Financial Times, this decision benefited Mr Fontenla-Novoa to the tune of an additional £165,000 in shares.
Now I have some sympathy for maintaining the morale and motivation of more junior and developing managers, by applying some discretion on impossible to achieve bonus targets. At a less senior level it can be hard to influence the overall company strategy. However, when that discretion is used to manipulate the bonus of the chief executive of a travel company whose bonus was at risk due to “travel disruption” then things have gone badly wrong.
Pity the poor shareholders who suffer the pains of currency swings, air traffic control strikes, revolutions, oil price rises…the list goes on. They suffer with lower dividends and a falling share price. Who are these people? Well they are all of us because as the share price drops then our pensions fall and our insurance premiums rise.
Meanwhile the brilliant senior executives, who are actually paid to act in the interests of shareholders, seem to rise above all this pain, over which they apparently have no control. Now call me old-fashioned but I always feel the time you can really judge an effective leader is when things get tough, not when things are going swimmingly. A big part of a chief executive’s role is to consider strategy and ensure plans are in place to mitigate risk.
The Thomas Cook board need to take a long hard look in the mirror and then decide that to apply discretion to the chief executive’s bonus is madness and unforgiveable. Should this de-motivate the executive involved then maybe he should consider moving elsewhere – though his options may be limited as countless other firms took the disruption caused by the Volcanic Ash incident as part of the normal challenges of operating in the travel industry.
By Jon Davies | Righttrack’s Interim International Business Development and Marketing Manager