Boohoo: fast-fashion group designs plus-size incentives for bosses

There is nothing quite like widening the goalmouth after the striker has missed it by a mile. That is what UK fast-fashion group Boohoo plans to do.

When John Lyttle became chief executive in 2019, he could have earned up to £50mn from a five-year incentive plan by boosting the stock price. Instead, the market value has fallen by two-thirds below the starting level. Lyttle would probably have got nothing at next year’s vesting date.

Boohoo justifies a rejigged incentive scheme on the basis that market conditions were outside management’s control. Funny how that argument never seems to apply when economics are favourable.

The group is worth just £600mn compared with £4.6bn at the start of 2021. That has as much to do with vigorous competition from Shein of China and labour controversies as rising input costs.

Boohoo is now asking shareholders to agree to a fresh set of incentives with targets it should be easier for bosses to hit.

The total possible reward of £175mn from the replacement scheme is a shade lower than the £200mn on offer before. But if it vested in full, dilution of 6.06 per cent would be above 5.77 per cent for previous schemes.

Boohoo’s chair Mahmud Kamani would not participate. Fellow co-founder Carol Kane would be included.

Five tranches of shares would be awarded when market value targets were hit. The stock would be exposed to clawback for price declines during a holding period. For the first two tiers paying out a total of £42.5mn the holding period is just a year. Shares from the later tranches would be held for three years.

Boohoo shares would roughly need to double to hit the first target and trigger a payout. Current depressed levels increase the chances of Lyttle pulling off that feat.

The incentive schedule is tighter, but there is also less time for management plans to go awry. Not for the first time, Boohoo is proving that in governance terms it is an outlier.