Pearson: new boss-elect Abbosh has hard act to follow

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Pearson was in special measures when Andy Bird took charge in 2020. The London-listed education company’s subsequent turnaround secured top marks for the ex-Disney executive. The unexpected news of his imminent retirement could unsettle investors.

Surprise departures often signal bad news to come. Spending little more than three years at the top is unusual. The average CEO tenure for London-listed companies is two-thirds longer, though short stints are more common for bosses who, like Bird, were former board members. 

Pearson has limited the uncertainty by announcing Bird’s successor. The board’s glowing description of “inspirational” incoming boss Omar Abbosh — president of Microsoft’s industry solutions business — will not hurt either.

Still, that may not mollify investors unhappy about Pearson’s pay plans. Abbosh will get up to £13mn to compensate him for leaving Microsoft, plus scope for an unusually generous bonus and incentive plan. This could be a sensitive issue. Pearson suffered repeated shareholder revolts over its previous remuneration policy. 

Investors who want to keep UK listings of companies with most of their sales in the US have been told they must accept remuneration largesse. That includes Pearson, though it professes loyalty to London. Its recent outperformance after years of profit warnings will back those who argue that big packages help attract “global talent”. The share price is up more than half since Bird took over. It was the second-best performer in the FTSE 100 last year.

However, shares now trade at 15 times forward earnings, just below their long-term average. Abbosh will not benefit from mean reversion. Nor is he likely to oversee such a dramatic jump in operating profit margins as this year’s expected increase to 15 per cent from just over 10 per cent. Pearson has demonstrated its potential to be a high-growth, high-margin digital disrupter. There is scope for further advances. But the going will get harder.