Three former executives of FTSE 100-listed aerospace manufacturing company Melrose Industries PLC (LSE:MRO, OTC:MLSPF) have enjoyed a massive payday after crystallisation of the firm’s 2020 Melrose Employee Share Plan.
An RNS published on Monday showed that Melrose transferred a total of 28,848,071 ordinary shares from treasury to participants.
Only existing chief executive Peter Dilnot was mentioned in the RNS. A Financial Times report put a monetary value of “just over” £1 million on his portion of the pot.
The lion’s share of the £180 million bonus pot went to ex-chief executive Simon Peckham, former vice chair Christopher Miller and former finance director Geoffrey Martin, according to FT’s sources.
The 2020 incentive scheme promised Melrose’s 21 most senior employees a share payout equal to 7.5% of any increase in Melrose’s market value, suggesting a pot value of £330 million.
Around half of this amount was paid to HMRC to cover the plan participants’ tax liabilities.
Melrose’s valuation has increased more than 80% over the past four years thanks to its famed (or infamed) ‘Buy, Improve, Sell' business strategy and the boost defence stocks have received from the Ukraine war.
Under this strategy, Melose wrested control of British multinational automotive and aerospace components business GKN in 2018 under promises of rejuvenating the business.
GKN’s valuation fell sharply in the proceeding years and in 2022, Melrose announced a demerger of a large chunk of GKN.
Some critics accused Melrose of being a financial raider.
The handsome payout for Melrose’s former top dogs adds to the trail of recent controversies over executive remuneration among British plcs.
London Stock Exchange Group PLC (LSE:LSEG)’s chief executive David Schwimmer’s £13 million package drew scrutiny in April, as did AstraZeneca PLC (LSE:AZN) boss Pascal Soriot’s £18.7 million salary and bonus package.
Shareholders approved the remuneration in both instances, though AstraZeneca’s shareholder base was highly divided, with a third of voters voting against the proposal.
Dilution risks
Melrose’s generous payout raised the prospect of shareholder dilution, though Stifel analysts were generally dismissive of the issue.
“With the group now opting to cash-settle the portion of the payout required to fund tax costs, and some of the remaining shares subject to lock-up, dilution is less than we had anticipated, and there seems little risk of material flowback,” they said.