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The phantom of the cinema

Between 2016 and 2019, Mooky Greidinger, the chief executive of Cineworld (CINE) received total pay of over £10m, and his brother Israel, who is his deputy, received over £7m. Half of this came from long-term incentive plans (LTIPs): in every single year, the participants hit their stretch targets and received all the potential shares. That proved to be a problem when in 2020, the directors found that the outstanding LTIP awards were “unlikely to deliver any significant value”.

Performance conditions that consistently trigger 100 per cent pay-outs flag a problem. They imply either a brilliant performance or insufficiently demanding conditions. Cineworld’s directors would no doubt claim the former. Their strategy was to buy up cinema chains, refurbish venues with the latest technology, and turn watching films into a high-quality experience. As Anthony Bloom said after chairing Cineworld for a quarter of a century, “in my wildest imagination, I would never have thought that the group would become the second-largest cinema chain in the world with 787 sites in 10 countries at the end of 2019”. Since what mattered was expansion, the only measure of success used by the LTIPs was the growth in earnings per share. That was flawed. Acquiring competitors increases total earnings. Financing acquisitions mostly by debt makes little difference to the number of shares in issue. Divide the increased earnings by the number of shares and, hey presto, earnings per share goes up. Those pay-outs came too easily.

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