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ALEX BRUMMER: Royal Mail boss Rico Back fluffs his delivery despite being handed a first class salary

30 Jan 2019, 15:01

https://www.thisismoney.co.uk/money/com ... alary.html

Buying out the contracts of incoming chief executives and offering them over-generous bonus packages is never a good idea.

Santander executive chairman Ana Botin has been hugely embarrassed by the on-off decision to employ former UBS boss Andrea Orcel, backing away from the contract when it was revealed the cost would be up to €50million (£43.5million).

The chief executive of Royal Mail, Rico Back, finds himself in a similar place.

He is on to a hiding to nothing having been granted a £5.8million buyout of his contract from the Royal Mail's parcels delivery service Global Logistics Systems (GLS) and an annual pay package worth up to £2.7million.

Royal Mail boss Rico Back, was granted a £5.8m buyout of his contract from the Royal Mail's parcels delivery service Global Logistics Systems and an annual salary worth up to £2.7m +1
Royal Mail boss Rico Back, was granted a £5.8m buyout of his contract from the Royal Mail's parcels delivery service Global Logistics Systems and an annual salary worth up to £2.7m

Back earned a reputation among employees, investors and the wider public as 'Mr Greedy' long before the Royal Mail's income fell off a cliff.

It has lowered its target for operational profits twice in quick succession and that was before what it calls 'transformational costs' take a big bite.

The chief executive cannot be blamed personally for the collapse in the letters posted, with earnings expected to plunge by 8 per cent in the current financial year.
But he can take responsibility for not seeing it coming given the decline in letter-writing and restrictions on direct marketing. Royal Mail shares are now below the flotation price after a 13.3 per cent fall yesterday.

That hurts investors, the posties who were given up to 10 per cent of the initial public offering and, most importantly, the Government.

It was initially kicked for selling Royal Mail too cheaply and awarding easy profits to the hedge funds and the sovereign wealth funds offered 'first dibs' by the investment bankers.

Now it has created an open goal for Labour which if it came to power could renationalise on the cheap.

The big opportunity for Back is online parcel delivery.

In the first nine months, revenues from GLS were up 13 per cent. But how capable Royal Mail is of defending a competitive space is uncertain.

One of its biggest customers, Amazon, has been building its own logistics, and with its deep pockets and ability to engage in price wars that is a big threat.

Moreover, many rival delivery services look to have the edge on Royal Mail/GLS in real-time tracking systems.

So what can Back do? One painful choice is to squeeze labour costs. But the optics would be terrible. The idea of multi-millionaire Swiss resident Back coming on heavy with the postal unions is anathema.

An ineffectual Royal Mail board created a rod for the whole postal service when it overpaid for Back's services.

As a company which operates in a public space, its letterhead is forever blotted.

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