Executive pay: Which? bonuses are questioned

The consumers' rights group plan to pay its chief executive £819,000 this year is just one of a number of governance concerns among its members

Last year was another success story for Which?, the charity that finances its campaigning and advice work for consumers through its product-testing magazines and other trading activities. Its accounts show that in the financial year to 30 June 2015 its income exceeded £100m for the first time since it was founded in 1957, and its publishing business made a profit of £24.6m. It spent about £12m of these profits on its charitable campaigning work and providing free advice, and most of the remainder on new ventures. The only blot on the landscape was the decision to close its Right Choice magazine and website in India, which made a loss it declines to put a figure to.

Much of the success can be attributed to a large increase over the past decade in the number of subscribers to its magazines. The number of subscriptions in the UK rose from 842,000 in 2005 to 1,491,000 in 2015, and the revenue from its publishing services increased from £54.8m to £94.6m in that period.

The Which? group has also diversified successfully into other areas, including mortgage and legal advice, and a service that helps consumers find trusted tradespeople.

The financial success of the charity has brought high rewards for its senior management team. Its latest accounts show that Peter Vicary-Smith, group chief executive of Which? since 2004, received between £340,000 and £350,000 a year in the year to June 2015, and two other senior managers were paid more than £270,000 a year. Vicary-Smith's salary made him the highest-paid executive working for a general charity in Third Sector's senior executive pay study last year. And in the current financial year some of the senior team are due to receive additional bonuses totalling more than £2m as part of an incentive scheme more familiar in the private sector than in charities.

Many of the board are well-paid executives who have done well in their particular trades. Their views on issues such as salaries are probably a bit different from those of most people

Ordinary member Patrick Taylor

This long-term bonus plan was agreed in September 2012 by the Which? council, on which sit the trustees of the charity who oversee both its charitable and commercial activities. The plan was designed to encourage "transformational growth and long-term success across the group" in the three years to June 2015. The plan enabled four unnamed senior staff to increase their salaries by up to 100 per cent for each of the three years of the scheme if they hit growth targets, with all of the increase to be paid in the financial year to 30 June 2016: to secure the maximum payments, they had to increase growth at the charity by 33 per cent. The latest accounts show growth increased by 68 per cent, and the charity has set aside bonus payments totalling £2.24m.

Which? repeatedly refused to disclose further details about the plan before Third Sector’s magazine article went to press on Monday, but on Wednesday it published its first-ever Mid-Year Review and gave an advance copy to The Times. Which? says it published the review in order to be "more transparent" about how it works as a self-funding social enterprise, and denied that its publication had anything to do with Third Sector’s article.   

The review shows that Vicary-Smith will receive payments totalling £819,000 in the financial year to 30 June 2016, potentially making him the highest-paid person in the charity sector. His earnings will include payments totalling £493,000 from the long-term incentive scheme, a basic salary of £235,000 a year, £35,000 in allowances and expected bonuses of £56,000.   

Three other Which? directors will also earn more than £400,000 this year under the long-term incentive scheme. Chris Gardner, managing director of Which? Publishing, a commercial arm of the charity, will earn £542,000 in incentive payments in addition to his basic salary of £180,000 a year, the review shows. Jacques Cadranel, group finance director of Which?, will receive incentive payments totalling £453,000 in addition to his basic salary of £153,000 a year. 

The Mid-Year Review states that the fourth director who benefited from the incentive plan was Kim Brosnan, Which?’s former group talent director, but it does not say how much she received.  However, a spokeswoman for Which? tells Third Sector that she received £400,000 under the scheme. The spokeswoman adds that £2.24m allocated to the scheme also includes a "significant amount" to cover its employer’s national insurance contribution.   

Which? told Third Sector in a statement before the publication of the Mid-Year Review: "Driving commercial growth is key to the fulfilment of our charitable objectives as our successful commercial businesses fund our charitable activity entirely, and we receive no public donations or government funding. The scheme was designed in 2012 by our remuneration committee in line with the principles set out in the Financial Reporting Council's UK Corporate Governance Code."

But long-term incentive payments have angered some ordinary members of Which? - subscribers to its products and services who have applied to have additional voting rights (see side bar above). Patrick Taylor, a retired branch banker and Which? subscriber for more than 30 years, says: "These guys are already among the best paid in the charity sector. Which? argues that those receiving the payments are on the commercial side, but I don't think that's relevant. This is still a 100 per cent-owned charity. If you pay £2.24m to four members of staff, you have deprived the charity of £2.24m."

You have to ask who decided that 33 per cent was a really stretching target if directors actually hit 68 per cent?

Patrick Taylor

Which featureWhich? chief executive Peter Vicary-Smith (L) and council chair Patrick Barwise

Taylor says some ordinary members had asked Which? to tell them on what measure the four directors achieved growth of 68 per cent and were told at last year's AGM it was based on "cash stream", but they remained unclear what this actually meant. Which? initially declined to provide Third Sector with further details about the long-term plan, but says in its Mid-Year Review that an external audit carried out found that its commercial operations had achieved a final valuation of £178.8m at the end of the three-year incentive payment period, compared with an original valuation of £106.6m.

But Taylor says: "At the end of the day, you have to ask who decided that 33 per cent was a really stretching target if directors actually hit 68 per cent?"

Taylor believes that the introduction of bonuses is related to broader governance issues at the charity. Until 2012, the Which? council comprised 18 members, 12 of whom were elected by the membership and the remainder of whom were either appointed or coopted. The board was reduced to 15 after an internal review in 2012; three elected members were lost, although elected members continued to be a majority. Taylor wonders why all three lost posts were elected trustees rather than coopted ones.

"I believe you need the average Joe to be there to provide a counterweight," he says. "Many of the board are well-paid executives who have done well in their particular trades. Their views on issues such as salaries are probably a bit different from those of most people."

Which? says in a statement that its council reviewed the appropriateness of its size in 2012, taking into account research from the commercial and charity sectors. The review concluded that the optimum board size was between seven and 12. "As a result, it recommended that our maximum number of council members should be reduced from 18 to 15, with elected trustees reduced from 12 to nine but retaining a clear majority," the statement says.

In 2012, a further change was brought in that caused concern to some ordinary members. Until 2012, the charity's articles of association said it should not trade with companies in which its own trustees held more than 1 per cent of the shares. This was raised to 5 per cent by a resolution put by the council to the annual general meeting in November 2012. This move came after it was discovered that Patrick Barwise, a professor of marketing at the London Business School and chair of the Which? council between 2009 and 2015, held 1.6 per cent of shares in Verve Partners, a research company that trades with Which?. Which? says in a statement that Barwise sold his shares in Verve Partners "as soon as the issue was identified", but confirms that he repurchased a 1.6 per cent holding in Verve after the articles were changed and while he was still the chair.

Taylor argues that the change in the articles was unwise because it could lead to conflicts of interests for the trustees. Which? says in a statement that the council believed the 1 per cent limit was "unduly restrictive". It says the change was approved by its ordinary members at its AGM and subsequently by the Charity Commission. The commission confirms that it approved the change.

In the Mid-Year Review published on Wednesday, Which? also says that it will publish the Which? council’s conflicts of interests policy later this month as part of its "commitment to providing clearer disclosure on how our trustees’ interests are managed".

Ordinary members are given the opportunity to raise questions at the charity's AGM, and its articles of association allow them to add resolutions to the agenda - but only if they secure support from at least 5 per cent of ordinary members. The charity now has 7,000 ordinary members, so it would require the support of about 350. But Taylor says it is difficult to secure such support because ordinary members are required to pay Which?'s printing and postage costs to send out resolutions. Taylor says he was told by Which? that it would cost about £8,000 to circulate his resolutions.

Which? says in a statement that it asks ordinary members to cover the costs of issuing resolutions because this ensures that only those "with a meaningful level of support are included in the AGM".

Taylor also says it is difficult for ordinary members to communicate with each other more generally. In 2014, Which? agreed to set up an online forum for subscribers after, Taylor says, it came under pressure from ordinary members. But Taylor says it has been poorly promoted and is not widely used. "It is not a very nice system and it's complicated," he says. "I would say fewer than 150 people have written anything on the forum."

Which? says in a statement that the forum is still relatively new and the charity has promoted it in its magazines. "The vast majority of our membership prefers to raise issues by telephone or email through our member services centre," it says.

Taylor has met officials from Which? to discuss his concerns and those of other ordinary members, but says the discussions have not proved productive. Last summer, he wrote to the Charity Commission about the bonuses. The commission says "employee remuneration is a matter for trustees".

In December, Taylor wrote to the Which? council on behalf of 27 ordinary members suggesting a series of governance reforms. These included making it easier for members to submit resolutions to the AGM and the creation of a dedicated website that would allow members to discuss AGM resolutions in advance. He is waiting hear back from the council after its latest quarterly meeting. "I remain disappointed," he says. "I find it unacceptable that they'll be making a £2.24m payout."

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