Sunday, 21 July 2013

Is Mike Ashley a philanthropist?

Long serving staff at his Sports Direct chain have just got considerably better off as a result of a generous share scheme and stellar performance at the retail group. Nothing unusual in that, of course. Plenty of businesses reward their managers well when performance is good. But what has caught the attention of many observers in Sports Direct's case is just who is on the receiving end of the bonuses. Not just the officer class, you see. Shop floor employees on £20k a year are set for an additional £75k in earnings from the share scheme this year.

It's wholly accepted that incentivising directors in line with company objectives is an effective way of aligning shareholders' and managers' interests. But I would argue that it's just as important, possibly more so, to incentivise those whose jobs are 'lower down the corporate ladder'. A company director or department head will often see their performance in their current role as part of their overall career progression. Hitting the numbers that were forecast to the city, outperforming the rest of the sector and winning industry awards can all be seen as fodder for the CV and more credibility towards that next step on their career path.

For the shop floor workers at Sports Direct, the overall performance of the group is unlikely to be felt in quite the same way. They are unlikely to be able to take the credit for the group's performance, despite the fact that, collectively, they are all just as responsible for success as the capos.

Did Ashley recognise this when he personally set up the share scheme 5 years ago? What's certain is that he took a fairly straightforward bet. By giving around 5% of the company to his staff, was he likely to get more value back because everyone had a stake in the success of the company? Put in those terms, it looks like a decent punt and one that has handsomely paid off for him. I hope that business owners and investors are looking at Sports Direct and taking note. 5% or 10% of company shares may be a small stake to lay for potentially great returns.

But was he being philanthropic? I don't know much about Ashley (who does?). Whether it was just straightforward good management or there was altruism in what he did, it must be a source of great satisfaction to see so many people doing well as a result of their own hard work. Thousands of people receiving a substantial amount of money must be more gratifying than seeing a handful of executives buying a bigger boat.