FT : LetterOne chair Mervyn Davies receives bumper payout after Russian oligarchs’ exit
City grandee received total of $40mn last year after Russian billionaire shareholders were targeted by UK sanctions
City grandee Mervyn Davies received $40mn last year as LetterOne’s non-executive chair, enjoying a sharp increase in pay as the firm’s sanction-hit Russian founders had to relinquish control, according to documents seen by the Financial Times.
The two separate payouts, which covered Davies’ work for 2021 and 2022, exceed those received in the years before the war in Ukraine, according to two people familiar with the company’s affairs and a review of accounts filed in Luxembourg. Davies, a former UK trade minister in Gordon Brown’s Labour government, and the other top LetterOne executives have been receiving “pretty sizeable amounts”, said a third person familiar with the firm.
The financial arrangements coincide with a turbulent period at LetterOne, which has highlighted how western sanctions imposed on prominent Russians have disrupted some western businesses.
The investment firm, which manages $27bn in assets including the Holland & Barrett health food chain and a stake in mobile operator Turkcell, had to put in place a new governance after founders Mikhail Fridman, Petr Aven, German Khan and Alexei Kuzmichev were targeted by UK sanctions last March, following Russia’s invasion of Ukraine.
As a result of the punitive measures the oligarchs have been barred from exercising their rights as shareholders. The billionaires also face limits on some of their personal spending.
Meanwhile, executives and directors at LetterOne have received large payouts while operating with an unusual degree of independence.
Davies, who became LetterOne’s deputy chair in 2015 and chair three years later, received about $18mn for his work in 2022, according to the documents. The figure included a $4mn “staff retention” payment and a discretionary bonus, as well as his base salary and a contractual bonus.
Davies separately received $22mn for 2021, the documents show.
In a statement, LetterOne said that “all remuneration relating to 2021” was agreed with shareholders in February 2022 and approved at a meeting that Khan chaired on March 2, before sanctions were imposed. (Fridman, Khan, Aven and Kuzmichev have been subject to UK sanctions since March 15).
LetterOne added that the money paid to Davies for 2021 included a payout stemming from a “long-term incentive agreement” that ran over previous years and was “triggered by favourable asset sales in 2021”.
As a comparison, Bridgepoint, the UK-listed private equity group with €38bn in assets under management, paid its chair about £900,000 in 2022 and £1.6mn in 2021, the year of its initial public offering.
Ten LetterOne executives received discretionary bonuses totalling $35mn for 2022, along with $30mn in newly introduced “staff retention” payments, the documents also show. Two people with knowledge of the company’s affairs said the figures were broadly correct.
LetterOne said it “does not comment on individuals’ pay, which is private”, adding that 2022 was an extraordinary year during which its survival had at times been “in serious doubt”.
With some large shareholders no longer involved in running the company, payments related to 2022 “were approved by our independent and hugely experienced international board” on advice from outside experts, the company said.
Staff had “worked tirelessly, in unprecedented circumstances [to save] the business and protected the 120,000 jobs”, LetterOne added. They had received “appropriate recognition in the 2023 bonus cycle to reflect their exceptional efforts and impact”.
Davies, who is on leave from the UK parliament’s House of Lords, declined through a LetterOne spokesperson to be interviewed for this story.
In an interview in December, he said: “We had to mentally cut the umbilical cord [to LetterOne’s Russian owners]. We had to mentally say: Look, we’re now in charge of this thing, we’ve got to do what we think is right.”
LetterOne’s top earners have enjoyed a significant pay bump since 2020, when two LetterOne entities paid $9.6mn “for compensation relating to key management personnel employed by the company”, according to accounts filed in Luxembourg. The company owed an additional $1.1mn in “long-term incentives” that year, the filings show.
Corresponding details for 2021 and 2022 may be included in subsequent years’ accounts. Those documents have not yet been filed.
The $150mn in wartime remuneration came on top of an additional $100mn in “carried interest” received by six executives who were contractually entitled to a share of the profits of deals that they helped to close. Davies did not receive any carried interest, according to the documents reviewed by the FT.