In today’s ‘me’ world as exemplified by the celebrity culture and institutionalised corporate greed – which allied to bad management has led in the banking sector to the derailing of the global economy – it is very refreshing that the retail industry can set a good example for business.

In today’s ‘me’ world as exemplified by the celebrity culture and institutionalised corporate greed – which allied to bad management has led in the banking sector to the derailing of the global economy – it is very refreshing that the retail industry can set a good example for business.

A performance culture where success is rewarded by financial incentives is an essential element of a profitable business in order to enhance motivation and maximise performance. However, as we have seen with disastrous results in the banks, when the bonus culture becomes a permanent part of the pay structure and failure goes unpunished the motivational and performance benefits are neutralised while there is an incentive to take higher and higher risks.

What is critical in any business is a balance. In retail the classic example of how a bonus structure can work is of course the John Lewis Partnership where staff loyalty and service levels are the envy of others. The important difference is that when JLP’s profits fall the bonus payout falls as well.

At a time when the pressure is on all management to save costs wherever possible there have been two inspiring stories in retail. Schuh, which grew out of the ashes of Goldberg in the 1990s, was sold to Genesco in June for £125m. As a result 2,310 staff shared £37.3m of the proceeds of the sale.

Those with 10 years’ service received the equivalent of two years’ salary. In addition, management chose to set £7m aside to create a charitable trust to support causes close to the hearts of Schuh staff. The strong culture engendered by this enlightened management has been an integral part of Schuh’s success.

And at Iceland, which has been Baugur’s one consistently successful investment, staff will share a £14.6m pay increase from October.

In addition to a basic pay increase of 5% many staff will benefit from moves to simplify the company’s pay structure including the abolition of the lower pay rate for staff under 18 and the introduction of a premium rate for all stores within the M25.

Store staff will receive an average increase of 6.3% with a maximum of 45.5%. Home delivery staff will receive an average increase of 13.1%. Thus, over the last six years the hourly rate for store staff will have risen by 33.7%.

With Landsbanki currently looking to sell its 67% stake in Iceland is this pay deal a ‘poison pill’ for would be bidders? In any event, sufficient allowance must be made for the intangibles – the inspirational leadership and understanding of his market provided by Malcolm Walker.

When Baugur first looked at Iceland my advice was unequivocal – “ yes, but you can’t do it without Malcolm”.

I effected an introduction and the rest, as they say, is history. In the current auction the risk profile is higher than the numbers alone might suggest and it certainly looks to be a step too far for private equity.

  • John Richards, Retail Consultant, McQueen