The absurd arithmetic behind Centrica boss’s bonus

theguardian.com:

A year ago, Chris O’Shea was in solidarity mode. The chief executive of Centrica, owner of British Gas, didn’t take an annual bonus because it would be “wrong” to do so when so many customers were on the wrong end of soaring energy bills.

The financial hardships haven’t obviously become any less hard over the past 12 months (especially for those unfortunate enough to be visited by a British Gas-appointed prepayment meter fitter) but O’Shea will take his full whack this time, including an annual bonus of £1.4m within an overall tally of £4.5m.

Examples of FTSE 100 chief executives waiving a bonus two years in a row are as rare as hen’s teeth, so we shouldn’t be surprised. And, in O’Shea’s case, it seems the chair of Centrica’s remuneration committee, Carol Arrowsmith, wasn’t wholly impressed by last year’s little gesture. “We cannot expect to attract and retain leaders in the future if we do not meet our commitment to recognise and reward the performance and talent of our people,” she wrote in the annual report.

Arrowsmith could more usefully have asked what, actually, this bonus scheme was rewarding. The targets for a bumper payout weren’t merely achieved, but cleared by absurdly wide margins for the reason everybody knows: Russia invaded Ukraine and wholesale energy prices soared.

While Centrica didn’t make much money from British Gas, its North Sea gas assets and its 20% stake in the UK’s fleet of nuclear power were perfectly positioned to benefit from the market-wide volatility. Returns exceeded wildest expectations. Thus the target for earnings per share – comprising 37.5% of O’Shea’s bonus formula – very quickly became a breeze. It was 6.1p with a maximum set at 8.6p. Actual outcome: 34.9p.

Or, even more absurdly, look