What is Christopher Bailey Really Worth to Burberry?

In his new combined role as chief executive and chief creative officer of Burberry, Christopher Bailey has come under fire from investors for his pay package. But what is he really worth to Burberry, and how can he quell the shareholder revolt?

Christopher Bailey | Source: Courtesy

LONDON, United Kingdom – At Burberry’s annual meeting on Friday, 53 percent of shareholders rejected a stock payout worth £20 million (about $34 million) to Christopher Bailey, who is now installed as the company’s chief executive, in addition to his role as chief creative officer. While the result of the vote was non-binding, it remains a strong signal of dissent from shareholders.

Over the weekend, London newspapers covered the story with unusual fervour for a fashion business story, placing Mr Bailey – the closest thing that fashion has to an ‘industry darling’ – in an uncomfortable, new kind of spotlight. The lead story on the front page of the Financial Times – a must-read not only for the financial community, but also for many of the high-spending customers around the world who have helped to drive the company’s extraordinary performance over the last decade – screamed, “Burberry chief’s £20m pay defeated.” A full page business story in London’s Sunday Times asked, “Because He’s Worth It?” Even the notoriously sensationalistic Daily Mail covered the story, simply calling it ‘obscene.’

The payout was awarded to Bailey as a retention incentive the company had to award in the face of “competing job offers,” according to Burberry chairman Sir John Peace.

“We are acutely aware he could command a much higher package outside the UK.”

“We are acutely aware he could command a much higher package outside the UK where the size and nature of remuneration can be very different and not publicly disclosed,” explained Mr Peace. “Angela [Ahrendts] went to Apple for over $60 million. There is no way we can do that.”

Mr Peace’s comments confirm that Bailey had received interest from other major fashion houses and had the opportunity to leave Burberry around the same time as Angela Ahrendts. This really seems to be the crux of the issue at stake here. If both Bailey and Ahrendts left the company in the same year, it could have been disastrous, not only for the company’s stock price but also for the future of the company as a whole. Finding a suitable replacement for either role would have been hard enough; replacing both of them would have been nigh impossible. In short, Burberry had to find a way to keep Bailey on side.

Indeed, the scale of Mr Bailey’s retention bonus, which comes in addition to an already generous annual pay package worth up to £10 million (or $17 million), is one of the largest pay packages that I have come across in the business. It seems Bailey had Burberry’s board over a barrel, and could name his price for staying with the business, as the cost of losing him was too high to even contemplate.

Perhaps it was the total package of a guaranteed stock payout and the unprecedented opportunity of becoming chief executive officer that finally convinced Bailey to stay? Not only could he continue to drive the incredible turnaround at Burberry that he has overseen over the past decade, but he could do so while making history as the first designer in a publicly-traded fashion company to become CEO. It is an ambitious, and admirable new challenge for him to take on.

The scale of Bailey’s pay package also points to the inordinate value that creative leaders can bring in an industry where top talent is harder and harder to come by. A report published by The Business of Fashion and The Boston Consulting Group earlier this year found that nearly 70 percent of luxury and fashion companies find it “impossible” or “very difficult” to hire creative directors.

So, more and more fashion businesses are using equity and upside incentives to attract and retain top creatives. In the ongoing legal battle between Kering and former Balenciaga creative director Nicolas Ghesquière (who has since joined rival luxury group LVMH as creative director of Louis Vuitton) we learned that Mr Ghesquière signed a contract in 2012 worth €20 million (about $27 million) over five years. He also owned 10 percent of the company, which was valued at €32 million when Ghesquière exited the business. Alber Elbaz is also said to own a significant chunk of equity in Lanvin, a business which he has singlehandedly elevated to a new status.

That being said, what really seems to have irked Burberry shareholders was not that Mr Bailey would be rewarded handsomely for his work or that he would be offered a retention package, but rather that the rewards came without any link to the future performance of the company. When Ghesquière and Elbaz were rewarded with equity in their respective businesses (neither of which is directly traded on the stock market), the brands were in the doldrums and the value of the companies was marginal. The Burberry stock awarded to Bailey, on the other hand, has real tangible value today.

When asked on Friday if he would be prepared to give back some of the generous stock allocation to quell the shareholder revolt, Bailey simply said: “It is not about giving something up.”

Perhaps this is something he should reconsider. As the chief executive of a global, publicly traded business accountable to his shareholders, giving back some of his allocated shares and linking them to Burberry’s performance would demonstrate not only that he believes in himself, but also in the future value he can create for the business, and that he is willing to put his money where his mouth is.

What do you think?

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8 comments

  1. What was Burberry worth before Christopher Bailey was hired? From my understanding, he is the reason the Burberry stock is even worth what it is worth today. Giving him shares rather than a cash offer is already a way of tying his pay package to results so I don’t really understand why the shareholders are complaining. It is such an insult that they are saying what they are saying because in essence, they have just told him he’s not worth the money. I’m sure Burberry is embarrassed about this as insiders seem to know he obviously has already held up his side ofvthe bargain, hence the huge offer in the first place.

    Heidi Leung from Union City, CA, United States
  2. Heidi Leung said it all. In addition, imagine if Christopher leaves Burberry. I bet the stock price would decrease dramatically. Not because they lost an executive, but because they lost the soul of Burberry.

    Pedro de Sa from Brazil
  3. It’s Rose Marie Bravo who made first major changes and hired CB. He’s great at his job, an incredible talent, I won’t argue with that. However, there are amazing people there working together for the company’s success. They all earn on average 250 times less than Bailey will if the package is accepted. I find it outrages.

    Kaia Zak from London, London, United Kingdom
  4. Retail businesses and its people vs shareholders… How do you get valued? Christopher Bailey and his talented team have no doubt made a positive impact in Burberry’s success, both as a brand and financially. As have the recent former CEO’s of the company. The positive identity of a retail brand is as important as the revenues.. without it, the revenues will not follow or could the life of a brand in the future.

    Heidi, Pedro we make the same point but to Kaia’s point, how can recognition and reward be shared down the chain of command which in turn will encourage retention of great talent? There are ways but will their shareholders agree to it and how long would it take to action in a company as large as Burberry before its not a priority/too late?

    Olly Finding from United Kingdom
  5. Olly, I absolutely agree that Angela played a massive role in the company’s success. To answer your question, the team should get more recognition and be paid better. Coming from a fashion house background I can say that the question everyone asks is ‘how can I progress within the company’. I can also say that although there are many talented people out there, it is very difficult to find real gems. For argument sake, if you have one of those gems doing 12h day again and again for very little money how will they react to the fact that some people in the same company earn 250 times more. While working so hard with very little money these people waste a chance of a future evolvement which isn’t good for both them and the company. Eventually they will leave to work for someone else, someone who will not only exploit but also expand the talent/knowledge. Just one of the examples; although Christopher is amazing the board should perhaps spend some of that money on the in house education/training so if CB (or any ‘irreplaceable’ employee) leaves one day they can be prepared and promote one of their own for less. Current employees could feel safe and motivated. Encouraging other programmes could be beneficial like job swaps within the company (learning about other positions) for a short period of time so employees have a chance to move horizontally not only vertically in case of a lack of positions to be promoted to.

    Kaia Zak from London, London, United Kingdom
  6. It is ridiculous that the stock holders are making these demands. They seem to have done quite well with Christopher’s talents guiding the House. What are they basing this outrage on? It’s not as if he’s an oil executive – so not only paid an obscene amount of money but also contributes to the destruction of the planet. Or a pharmaceutical executive who pays off companies to falsify tests so his firm’s new drugs get the green light, only to end up killing some patients who needn’t have died as early as they did.

    He’s a designer. Of beautiful, luxury clothing from a respected, traditional fashion house. One who drove the value and stock price up considerably over the past decade. So…everybody is winning.

    Sounds like a case of sour grapes to me with those headlines. The shareholders – who are undoubtedly clients as well – don’t want their “tailor” making more money than they are.

    Very classist. So therefore not very surprising of the British considering their love of hierarchy.

    Michelle

    Michelle Fix from New York, NY, United States
  7. It is very interesting to me that Christopher is being handled this way. I think it has much more to do with his core being that of creative rather than being a classic finance or operations leader stepping into the CEO position. Burberry has been so successful with Bailey and I find it very telling of the shareholders the lack of value they place on creative, and design. However it is with design as the leader that has made the current brand so successful. I hope that these attitudes of creative leaders change with the public and private sector as the cream always rises to the top and Christopher belongs where he is and deserves every penny.

    Seth Travis from Miami, FL, United States
  8. Kaia, I think what you are talking about is a little off topic because low compensation and morale is not something that has to do with Christopher’s pay package but just the fashion industry in general. Actually, low wages and retention of talent compared to what top executives make is just a world wide issue. Something should definitely be done to fix this issue as most people who work in the luxury industry can not even afford what they design or make but it is not something Christopher should be held accountable for. He is doing two jobs which require an enormous amount of energy and time and as the company is the one who made the first offer to him, then he should not be punished or painted as greedy.

    Heidi Leung from Union City, CA, United States