Vodafone CEO pay soars despite 'not good enough' verdict

Former Vodafone boss Nick Read trousered precisely £3.875 million (US$4.9 million) for his last nine months in charge, about 93% of what he collected for the previous full year, according to the UK-based operator's recently published annual report. This was after Vodafone's share price fell 43% on his watch and as Margherita Della Valle, his chief financial officer (CFO) and successor, delivered a verdict of "not good enough" on Vodafone's performance before she took over. It is the executive equivalent of collecting a winner's prize after losing two sets of tennis and then hobbling injured off the court.

But the controversy does not end there. Della Valle, as expected, appears to have enjoyed a substantial pay rise after stepping into the top job. Not the sort of pay rise that ordinary mortals receive on moving a rung up the corporate ladder but one that saw her collect £3.689 million ($4.66 million) for the fiscal year that ended in March, a 37% increase on the year-earlier figure. To be clear, Della Valle was not appointed CEO until April but spent the previous three months as both "acting CEO" and CFO. One can only assume her compensation reflects this doubling-up of roles.

All told, this means Vodafone awarded the person doing the CEO job exactly £4.823 million ($6.09 million) for the last fiscal year, 16% more than it doled out the previous year and 36% more than it paid Read the year before that. As a result, Vodafone's boss collected 139 times as much as the company's lower-paid workers (the 25th percentile, as organizations are now required to show), up from a ratio of 106 two years ago. This is not a good look.

In fairness, the pay ratio with the median employee has fallen from 87 to 68 in the last two years. That figure is lower than the 77 reported by UK telecom incumbent BT, whose pay ratios for both the 25th percentile and median levels have risen in the last two years, despite some fuss in the mainstream press about the freezing of CEO Philip Jansen's salary. C-suite executives, of course, receive most of their compensation in bonuses and long-term incentive schemes denied to most ordinary workers. Jansen's annual salary has been unchanged at £1.1 million ($1.39 million) for the last two fiscal years, but he pocketed nearly £2 million ($2.53 million) in various benefits for 2023.

No success? No worries

A breakdown of Della Valle's compensation indicates that she received £913,000 ($1.15 million) in fixed remuneration (salary, taxable benefits and pension) as well as £2.776 million ($3.51 million) in variable, bonus-related payments. It also shows that she was handsomely rewarded even when Vodafone failed to hit the midpoint of a financial target range against which she is measured.

Proof of that lies within a bonus scheme Vodafone calls the global short-term incentive plan (GSTIP), which accounted for £1.206 million ($1.52 million) of Della Valle's compensation. This awards the company boss up to 200% of his or her salary depending on how Vodafone did against four performance measures for service revenues, earnings (before interest and tax), free cash flow and "customer appreciation." Beat the target range for earnings and Della Valle would receive the maximum payment of 50% of her salary for that measure. The same goes for each of the other three measures.

Vodafone happened to fall about €300 million ($324 million) short of the €6 billion ($6.5 billion) midpoint of this earnings target range, and yet Della Valle was still able to collect a bonus equivalent to 16.6% of her annual salary of £1.082 million ($1.37 million) and take home nearly £180,000 ($227,405). On its own, that is about two-and-a-half times as much as the overall pay, including benefits, for an employee at the median level. The situation would probably surprise ordinary workers at many companies who would come under serious pressure if they did poorly on performance targets.

The issue of executive pay has not been an obvious concern of shareholders. Company bosses at publicly listed companies can always be voted out or pressured to quit. Obscene as compensation levels may look to the average worker, they represent a negligible fraction of profits at organizations serving hundreds of millions of customers. And less generous owners may struggle to attract the best talent.

But a system that continues to boost executive pay when its own boss admits to business shortcomings may look broken. Della Valle, whose turnaround plan involves cutting about 11,000 jobs in the next three fiscal years, was Vodafone's number-two executive while disgruntled shareholders were complaining about its failure to line up deals and loss of competitive form in key markets. The pay details included in its latest annual report make for extremely bad optics.

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— Iain Morris, International Editor, Light Reading