How big a slice do the big cheeses get – and are they worth it?
As many of the tier one contractors continue to post poor profit margins the question can be asked: Are the top execs really earning their keep? Interserve’s CEO came under fire earlier this year for drawing a large bonus when the company continued to report massive losses. Compare the tables below against financial results in the 2018 CN100 report and it raises some interesting questions.
|Rank||Executive||Company||Role||Basic salary (£)||Total package (£)|
|1||Leo Quinn||Balfour Beatty||CEO||800,000||5,393,891|
|2||John Morgan||Morgan Sindall||CEO||491,000||2,578,000|
|3||Steve Crummett||Morgan Sindall||FD||391,000||1,997,000|
|4||Philip Harrison||Balfour Beatty||CFO||400,000||1,896, 861|
|5||Andrew Wyllie||Costain||CEO||468,013||1,666, 763|
|*The data compiled in the table is based on analysis of the companies’ most recent annual reports. The final compensation package figures include elements such as annual bonus, pension allowance, long-term incentive plans and share awards. The plcs are taken from the annual CN100 in 2017|
2018 CN100 Revenue Top 5
|2018 rank||2017 rank||Change||Contractor||Revenue (£m) – latest||Revenue (£m) – previous||Latest accounts end-date|
2018 CN100 Profits and Margins, Top 5
|CN100 2018 rank (by turnover)||Contractor||Pre-tax profit (£m) – latest||Pre-tax profit (£m) – previous||Pre-tax margin – latest||Pre-tax margin – previous||Latest accounts end-date|
In earnings, revenue and profit margins, Balfour Beatty tops the scale, yet a comparison of their pre-tax profit margins compared to Sindall, the next highest on the earnings rankings and they lose a little lustre. Balfour Beatty Morgan boasts revenue almost two and a half times that of Morgan Sindall and their CEO’s total salary package is more than double. Yet Balfour Beatty’s profit margins are 0,6% lower than Morgan Sindall, and when those figures are in millions its quite a significant difference.
The interesting thing is that in 2017 Morgan Sindall reported a profit margin of only 1.8% and were no different from the other top ten main contractors. So what has the company been doing differently and what influence have the top decision makers had on the business turnaround?
CEO Jon Morgan has commented that the company has been more selective of the construction project’s it’s taken on and not being overly concerned about shrinking its order book in the process. This approach seems to have worked for them. Focusing mainly in Fit-Out, construction and infrastructure, Morgan Sindall has also targeted urban regeneration projects, which have proven to be a profitable niche. They have also landed a number of major contracts in 2018 including a £1,3bn MoD 10 year framework in Scotland and a £2bn property development JV with Hertfordshire County Council.
The CEO caused shockwaves by announcing he didn’t see the need for late payment legislation when almost everyone else in the industry has been calling for just that. Maybe this is because Morgan Sindall is reported to pay more than 75% of invoices on time.
The CEO and FD may well be the second and third highest paid executives in the industry, but by comparison with the rest of the top ten in terms of revenue, earnings and profit margins, the latter indicates that they’re earning their keep. At the very least, it’s an example of the type of leadership the industry needs.