There is a counter-argument that in a global market for talent big sums are needed to attract the best leaders – in the US, the average boss is paid nearly 300 times more than the average US salary of $58,000. And it is indeed quite possible that in some cases it might be worth coughing up for a ‘L'Oréal leader’ – because they’re worth it. For all the talk of CEOs not earning their crust, running a large and complex business well requires a special kind of person.
One leader who has almost certainly been worth it is Tesco’s ‘Drastic’ Dave Lewis, who has led the grocer’s impressive turnaround from the mess it had found itself in. This week he surprised the market with news that he plans to step down next year, an exit that – given his influence on the group’s recent success – could have easily prompted a nervous share price slide. Its superb results that accompanied his bombshell – which we cover on page 44 – explain why this didn’t happen, and why he’s earned every penny of a salary lower than the FTSE 100 average. A revitalised and refocused business worth £10bn more than when he started and able to take on the challenge of the discounters leaves his successor a solid foundation to build from.
While Tesco’s recovery gathers momentum, another is struggling to get going at all. Marks and Spencer admitted this week that its turnaround programme is 18 months behind schedule. In a fast-moving retail world, that is an eternity, and successive management – for which M&S has often paid handsomely for big names – must take most of the blame, tinkering at the margins rather than implementing the ‘drastic’ surgery it needs.
Assessing the possible success of a turnaround programme is a key plank of most value investing strategies, and there is much investors can learn from the diverging fortunes of these two turnarounds. The right boss is one key ingredient – someone more rolled-up sleeves than razzmatazz is a must. Another is that it’s probably best to buy in only once signs that the strategy is working start to appear – after a bounce Tesco’s share price recovery only really began in earnest over a year after Mr Lewis joined; M&S’s shareholders have been waiting years for a long-promised recovery that may never come.
