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Insight to All Things Currency and Treasury Management

Earlier this week, the Wall Street Journal posted an article about Burberry CEO, Christopher Bailey, taking a 75 percent cut in pay due to “disappointing results.”

“Burberry recently announced a cost-cutting plan and a share buyback as the company works to shore up its shares, which have fallen roughly 35% in the past 12 months…” the article stated. “Burberry has been battling a steep slump in sales in Hong Kong and tough trading conditions in the U.S., while also trying to deal with currency fluctuations and a shift in how its core Chinese customers shop.”

There’s no doubt that many of the issues Burberry has faced are ones that are challenging to change. However, in the mix of problems cited in the WSJ, one of those factors, currency fluctuations, is an issue that could have potentially been more proactively managed against— one that, ultimately, contributed to Bailey’s substantial pay cut.

The idea of FX results being tied to compensation isn’t a new one. But, according to a 2015 Deloitte CFO Insights article, FX’s recent affect on earnings has created “…a more pressing need to raise the issue of whether or not incentive plans, which are partly impacted by FX fluctuations, should be revisited, and whether or not incentive compensation should be adjusted to reflect unanticipated FX fluctuations.”

CFOs, treasurers and corporate finance practitioners are becoming more currency aware and are gaining a stronger understanding of the impacts FX can have on earnings (see the data on currency impacts in our currency research reports). However, in the regular day-to-day, it can be easy to overlook the direct impact that FX results can actually have on personal salaries and incentives.

In that same CFO Insights article, Deloitte goes on to explain a recent “proposed rule” that could eventually make this impact even more commonplace.

“The Securities and Exchange Commission recently issued a proposed rule4 that would amend Regulation S-K, Item 402,5 to implement a mandate under the Dodd-Frank Act,requiring a registrant to disclose the relationship between executive compensation actually paid and the financial performance of the registrant.”

With this increased scrutiny into compensation vs. overall financials, the fact is, cases like that of Burberry’s Christopher Bailey could become the norm. This lends to the idea that being currency aware, having a real understanding of exposures, and accessing deep insights into one’s currency program has never been more important— both to one’s company earnings and personal career track.

For many C-level executives, understanding their currency program as a whole, including the impact of FX, is becoming more of a priority.

The good news? When it comes down to it, there’s a visible trend towards an increased level of FX awareness and sophistication. The bad? Those who are not on board are putting their business and potentially, their pay, at risk.