Primark’s third-largest shop sits on the other side of Oxford Street to Marks & Spencer’s (MKS) flagship Marble Arch store. In a metaphorical sort of way, it would have been a short walk for Eoin Tonge when he left M&S in January this year. Just a few weeks later, on 3 March, he started as the finance director at Primark owner Associated British Foods (ABF).
His move provides a case study of executive recruitment. ABF started searching for a new finance director in 2022 to replace John Bason, who’d been in the role for 23 years. This was not the best of timing, for many other companies were also looking for new finance heads. According to Chris Gaunt at headhunter Spencer Stuart, quoted on Bloomberg, the increased demand had come from companies concerned about having technical “easy top-line growth” people in the key financial roles with no experience of inflation, higher interest rates or of how to cope with a recession.
Their directors saw that the need was to focus more on cash, liquidity and financing, especially when restructuring was being planned, and “rise-to-the-challenge” candidates capable of navigating their companies through a crisis were proving hard to find. The role of finance director had become “the hottest in the job market” and arguably also the hottest seat in the boardroom.
Korn Ferry’s Rebecca Morland says that being a chief finance officer “is not just about running the finance organisation. They’re almost the deputy chief executive... and often the chief transformation officer as well.” That made Tonge a natural candidate as less than a year after joining M&S as finance head in June 2020, he’d added the role of chief strategy officer. He was clearly both capable and highly regarded, just the sort of potential candidate that executive search teams pounce upon. Then came the announcement in March 2022 that M&S was replacing its chief executive and that Tonge would continue, but in “an enhanced role” to lead “the future development of the business”. For head-hunters, that must have raised questions. Is he driven by ambition? Had he been disappointed at not being selected for the top job? Would he be up for a new challenge?
The recruitment of top executives involves a procession of interviews, all in the strictest confidence and normally conducted outside of normal working hours. As well as ability and experience, the idea is to assess intangible qualities, such as general attitude, enthusiasm, motivation and resilience to pressure. There’s no need to mention pay. An idea of the likely package can be found in the annual report. Only in the later stages are the details hammered out.
What did it take for ABF to entice Tonge? The short answer seems to be more jam today and less jam tomorrow. His starting salary at ABF was higher by a tenth: £725,000 compared with £660,000 at M&S. That increase has a knock-on effect because both companies pay annual bonuses tied to the salary. In each, it can be up to twice as large. Not only would his ABF bonus be potentially higher, he would get it earlier too: ABF pays three-quarters in cash and a quarter in shares deferred for a couple of years, whereas at M&S half is held back. Both companies also tie share awards to salary: 2.5 times at M&S; 1.25 times at ABF. But M&S awards are conditional on corporate and individual performance, while to receive those at ABF, executives simply have to remain working for the group, subject to the normal safeguards. That spells more certainty: at ABF, less of his pay would be at risk.
Tonge came at a price. On leaving M&S, he forfeited more than 800,000 M&S shares plus possibly another 2mn conditional on performance conditions. ABF replaced them with its own shares on a like-for-like basis. That’s good corporate governance. This included matching value for value and, as far as possible, matching the investing and holding periods. ABF assumed that one restricted share is worth two with performance conditions, and the conversion was calculated using the average share prices of the two companies during the month before Tonge joined. By having awarded shares for release later on, M&S got much of his pay back. ABF had to stump up shares worth over £4mn so that he wouldn’t lose out.
And now for the irony. Tonge had helped to turn M&S around, and since he left, its share price has recovered. Had he stayed, and if M&S’s share price continues to outperform ABF’s, those shares that he forfeited – and especially the ones subject to performance conditions – could have become worth a few million pounds more than his ABF substitutes.
People change jobs for a variety of reasons. Money can only smooth the way. But it’s always worth bearing in mind that pay at risk can cut both ways. Share prices can go up as well as down.
