Melrose/executive pay: engineered returns | Financial Times

Melrose likes to think of itself as a variety of Spac, from a time before the US craze for blank-cheque vehicles. The industrial turnround specialist began life in 2003 with £13m in its pocket, only going back to investors for its maiden acquisition two years later.

The UK-listed group is now valued at more than £8bn, making multimillionaires of its founders. An operating loss of £338m in 2020 reflected aerospace exposure. Adjusted numbers trumped expectations and Melrose fired the starting gun on a sale of Nortek, a US air-conditioning business.

This will be grist to the mill for shareholders, who have pushed the stock up 11 per cent since last week. Good too for directors whose pay is heavily geared towards performance.

Melrose is a production line, spitting out reconditioned assets. The C-suite, who earned their stripes at mini-conglomerate Wassall and asset stripper extraordinaire Hanson, have engineered an incentive plan to match. 

The basic salary component pitches directors “well below” the bottom quartile of FTSE 100 peers. Covid-19 left the last bonus pot empty; Simon Peckham quips that he was one of the lowest paid bosses last year. Presumably securing one of the biggest paychecks in 2017, when his maturing five-year long-term incentive plan yielded £42m worth of shares — to be locked up for two years — makes up for that.

The latest scheme was to have been nailed down in May, when Covid-19 had pushed Melrose’s share price down to 94p. Directors sensibly opted to wait, and shareholders approved a benchmark price of 170p at the tail-end of last year — 10p or so below current levels.

Critics could quibble with the sums passing upstream. Seen through the lens of private equity they are less extraordinary. Financial alignment with shareholders is good: the company created £3.6bn of value over the period of Peckham’s five-year LTIP.

Nortek is expected to sell for $3bn-$3.5bn. Melrose paid an enterprise value of $2.8bn for the entirety of Nortek, including security operations (about a third of revenues), in mid-2016, swooping just after British voters voted to leave the EU.

That would leave Melrose with transmissions and aerospace group GKN, acquired controversially for $8bn in 2018, and generators group Brush, most of which it has already sold. A conveyor belt, certainly, but a gravy train too.

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