Drax Power’s £136 Million Windfall is Deserved

The story is an old one. Management screws up a company horribly, fires a huge portion of the staff, and gives itself seven figure bonuses to celebrate. Drax Power, a UK-based utility, is not one of those stories. Instead, the company is about to get a £136 million helicopter drop of money that will go to management and staff alike because they earned it.

Two years ago, Drax was in a pretty bad place. Its biggest customer, TXU Europe, went belly up, and it had debts totaling about £1.3 billion. Its creditors stepped in, and the transformation is truly impressive. The company is now going to be sold for either cash or shares or wind up listed in its own right on the London Stock Exchange. When that happens, a long-term incentive plan will line the pockets of everyone there.

According to the Daily Telegraph “About 5pc [%] of the proceeds, worth £85m[illion], will be split equally between three groups - the six-strong board, 60 top managers and the employees - under a long-term incentive plan (LTIP). Another 3pc, worth £51m, will be split equally between chairman Gordon Horsfield and former chief executive Gerald Wingrove, both of who [sic] chose to take 1.5pc stakes in the company rather than salaries when they joined. The company's 900 management and staff control 8pc of the company in total. Drax's equity is valued at £1.7 billion.”

While some may complain that the division of the spoils favors the generals rather than the privates, there is no disputing the fact that the turnaround from £1.3 billion in debt to £1.7 billion in equity in just two years warrants the money. Since Messrs. Horsfield and Wingrove took stock, which was almost worthless two years ago, rather than an inflated salary, they should be rewarded for their performance in this way.

Dorothy Thompson, the relatively new chief executive at Drax, said the LTIP “is well deserved. It was established to incentivise [Sic, God forgive her for she knows not what she’s saying] not just the management but every member of the workforce to bring the company out of what was very close to receivership. They were some very difficult years. They took on a business that was in serious trouble.” And they saved it. They performed, they get rewarded. Now, if one could just establish in the boardroom that failure gets punished instead of rewarded, this free market thing would work better.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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