Executive rewards, for what?

Yes ok, CEO's pay is very high - I think we get it now! Are these blogs supposed to be written to highlight genuine business stories and give some insight into the business world that these award winning reporters are privy to (and which us ordinary punters are not) or just to generate inflammatory comments from the readers on "fat cats" and "evil bankers"...?

Is there any evidence (other than the obvious correlation between high salaries and large organisations) showing that real performance (return on capital etc.) is related to grossly inflated pay?

They're generally wealthy when they take up these positions, so why don't they just get paid in shares. I think this might motivate better corporate performance

Thank goodness that the head of Shell has exposed the farcical nature of executive pay;it is rather like the story of the Emperor's new clothes.I expect Mr. Hornby is picking up huge sumes for running Boots, despite ruining a bank. Anyone for a boycott of Boots?

"Mr van der Veer implies that the international market for executive talent is ludicrously irrational and inefficient, since by his own admission it puts a price on him that is considerably more than is necessary to get the best out of him."

- No it doesn't. It implies that supply of appropriate labour is less than demand, driving the price of that labour up. Whether that labour would work for less money does not bear on statements of the efficiency or otherwise of the market.

The fatcat executive salaries, like the fatcat quangocrat salaries and the billions the government has hosed at consultants and special interest groups, were a product of the boom years --- the legitimate equivalent of J.K. Galbraith's bezzle. We've had ten easy years when the flow of money seemed limitless; when money itself was devalued ("billion is the new million"). But this easy money was mostly borrowed from future earnings. Now we face ten hard years when consumers and governement start to pay the money back: our lost decade. When money is tight and every penny counts then even corporate remuneration committees will question executive salaries, if only to prevent shareholders or government doing the job for them.

Now that times are tough, the public are getting increasingly angry about the asymmetrical way people are rewarded in this supposedly fair society.

The one group of people who are truly deserving of accumulating great wealth, namely entrepreneurs who put heir own capital on the line, are now impeded by high taxes, cost of capital and onerous legislation.

What we are presented with, by contrast, are:

Senior executives of dubious ability who award themselves vast remuneration irrespective of their own or company's performance.

Politicians/Peers and senior public servants who make vast amounts of money at the tax-payers expense without any justification.

A royal family who waste millions of public money.

A BBC which is essentially ripping off the public and which competes unfairly in the media market.

Professions such as medical and legal which use their privileged position to rip off the public any way they can.

The shear hubris of some these people is unbelievable. They believe they have some god-given right to earn typically 50 times what the average person is expected to live on. Whether it is through taxation, exorbitant fees or loss of dividend revenue we are all paying through the nose, and it is bleeding the country dry.

The labour government, far from addressing these imbalances for the last 11 years, has made the problem far worse and has pretty well brought about the ruination of this country.

Gee Booby thanks for enlightening us mere mortals on the ways of the world.

We all know what happens with the ruling classes in terms of remuneration and its correlation to real value.

We all know that when these chaps make collosal mistakes and create huge challenges for hard working families they wont be hung from the nearest tree but slip away for a few months then end up somewhere else a la Hornby.

We all know its a boys club. Add to that the MP debarcle and certainly in a political sense the winds of change are coming.

I just hope I live to see the day when both executives and MPs are held accountable either with jail time or preferable the tree option.

Referring to the value of FTSE 100 companies at present immediately following a fall/crash seems a little weak, especially when you consider that the FTSE slide in the last year accounts for far more than 23% to which you refer. Statistics can all too easily be manipulated, particularly taking such a small snapshot.

As to remuneration the comments by Mr Van der Veer don't reflect the expectation within the job market at that level. The expectation being that you will be extremely well paid.

If he had thought that he were being overpaid, as 'leader of the gang' he might have easily considered a suitable remedy to the problem, i.e. accept a lesser wage- saving his company money and giving credence to his most recent comments. That he failed to do so speaks volumes- either about himself as a person, (taking what he could when he could), or actually- that he felt he was worth the money.

Actions will always speak louder than words and with no mention of his pension pot either! Sheer hypocrisy.

He said he wouldn't have done a better job for 50% more. He didn't say that he wouldn't have taken a different job for 50% more -- of course he would have, but nobody offered that much.

So he doesn't imply that "the international market for executive talent is ludicrously irrational and inefficient" at all, does he?

I think most people on the front line realise this already - it's simply another corrupt & cosy "Gentlemen's club", that apply Poweromics* ... which is being exposed now for all to see ...

Non-executive renumeration committees are part of the same cosy club - and get the favors paid back to them in return ... the fund managers are part of the same game too (and will also join the firing line) ... The losers are the vast majority of people, who work hard, pay their tax and now live in fear of their job ... whilst others 'gamble' away (and profit from) their pensions (and avoid paying as much tax as possible too) !

Most people in these clubs are 'not entrepreneurs' and normally from the finance community. They are also rarely innovative and tend to systematically destroy long-term value, prosperity and growth (e.g. by failing to innovative and applying simple cost cutting exercises) to obtain a large bonus for achieving short-term financial targets and goals**... people we should challenge, stop and/or retrain in 'value management' ... (not reward them with ridiculous salaries, pensions, bonuses, and pay-offs for failure!) ...

Massive corporate pay settlements and rewarding failure have had their day ... and clear self interest, poor moral values and greed have also had their day too ... the application of Poweromics* is being challenged in Government and it's going to be challenged in business too ...

More people can see it now and it's not going to go away ... for instance I'm writing a Poweromics* blog with more examples to make sure it doesn't ... and to make sure its addressed once and for all ... and anyone who is doing the same will be linked from it too ...

Poor management** and Poweromics have had their day - and with the help of the internet they will soon change forever, and for the better ... because hard-working people will keep the pressure on until it does ... they will vote with their 'voice', their 'feet' and their 'wallet' ... and when the latter two start to occur let's see what happens ...


David Clift, a Future 500 Leader



* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed ... take a look at my previous comments and at https://poweromics.blogspot.com for instance.

** 21st century leadership and management are completely different to traditional leadership and management, and focus on continuously improving the long-term value of an enterprise and the lives of people ... not creating fear and sacking them.

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Are these people really worth this amount of money? I'm not so sure.

They are another product of the economic bubble. A bit like property, another "scarce" resource, they became rather overvalued.

Perhaps their true value in today's money is about half what it was, and without the bonuses.

How many millions of income tax do Mr van der Meer and his ilk pay yearly into the British Treasury ?

Until someone comes up with a plan to reduce executive salaries it seems rather pointless discussing them. They arent going to do it themselves even if we bitch about them. The only people who can affect them are shareholders and they are large financial companies run by executives doing the same thing! That leaves government and who pays for the political parties? Yep- you got it.

There is another way of looking at it. The CEO salary does not motivate or compensate the CEO who is already rich - it motivates all the people below him who would like to get rich and think they have a chance of becoming CEO to work harder. It is cheaper for the organisation to motivate a large number of people by dangling the possibility of great wealth than to pay them a reasonable amount for their contribution.

The problem is that this psychological trick stops working if it is stretched too far and it becomes clear to people they really have no chance of winning and success is based on luck, nepotism and ruthlessness rather than delivering value. Thats where we are today.

Mr. Van der Veer is, presumably, a Dutchman; running Shell, a (predominantly) Dutch company. The bosses of GM and Chrysler are American; the Chief Execs of BP and Barclays are British...so where is this cohort of globe-trotting business superstars we have to pay so highly to recruit ?

In order to justify any pay, an employee at any level should be worth more to the company than their wage. In this sense, it's quite likely they are worth their huge salaries, as a top exec paid a few million pounds a year could easily make decisions worth far more than that when the company is valued at £50 billion. And it's certainly a good idea getting the best people to run the company: if the best execs are hoovered up by companies offering £10million, and others end up with inferior quality execs because they only offer £1million, the ones paying less are obviously likely to perform comparatively worse in the long run.

Even if such salaries are ultimately beneficial for the company - whether earnings on such a scale are socially just is a big question. Probably not, but there's an anger directed at businessmen that's generally not also applied to people such as Hollywood actors and top sportsmen who arguably do far, far less - it's not like they make much money or many jobs for anyone but themselves. That makes it a much bigger societal issue than just corporate pay.

Secondly, as Peston points out, whether there are adequate measurements of bonuses and performance, and rigorous oversight is important. It seems not to me, and frustration of many people may be that no-one else seems to know either, and too few people trying to find out.

It is clear that these executives are not worth the vast sums of money being paid to them, just as sports stars, musicians and television presenters are not worth the exorbitant amounts they are paid either. Is it their fault that they are being offered so much money?

To state that you "just hope I live to see the day when both executives and MPs are held accountable either with jail time or preferable the tree option" (thetruthfromvilla) is a ridiculous remark. The majority of executives have not done anything illegal and have simply taken what has been offered. Who is more at fault, those accepting the millions offered for their job or those offering?

It is very easy to criticise those who are better off, but perhaps it is simply jealousy and bitterness. If we were in their position would anyone honestly reject the money? The reality is there will always be those more wealthy than ourselves and complaining about it will not help. Company executives do not pay themselves (unless they own the company) and as such somebody clearly values them at what they are being paid.

In speaking out against the obscene remuneration package that he recieves for being the head of a large organisation, regardless of how poorly that business performs, Jeroen Van Der Veer has simply confirmed what many ordinary working people have long believed.

Apart from being grossly overpaid for the work they do many of the people who are heading up some of our largest banks and businesses have proven to be quite inept and incompetent when it comes to managing such businesses.

The problem of over rewarding has been created by the incestuous old boy or old school tie network. These people seem to regard themselves as some form of elitist body and believe they entiled to reward one another with whatever summs of money they feel they are entitled to.

Because this country has become morally and ethically bankrupt on a vast scale, what we now need to ensure is that the rules of financial governance in the city, in industry, in the public sector as well as in Parliament are better and stronger than they have been in the past.

Greed. leads to selfishness. leads to arrogance. leads to complacency. leads to self-gratification. leads to incompetence. leads to wastefulness. leads in the end to corruption. kind of the story of management culture isn't it.

Another aspect of this is that it is extremely hard (impossible?) to actually measure how well a senior executive has performed. Even if his targets are met, was that actually down to his performance? Or that or those working for him? Or just market conditions/luck? Or indeed were the targets sensible in the first place? You just can't tell (though when an exec makes a particularly big mistake like a disasterous acquisition then that is often pretty apparent). It may be just me, but I've come across some senior execs in my time whose performance was so lamentable that their company would have performed better if they had just gone on a permanent golfing break and left everyone else to carry on without them.

But there are only a few senior execs in each company, whereas there are typically large numbers of "shop-floor" staff. So the wages of the shop-floor staff matter to the company's bottom line, whereas the exec's pay doesn't really count all that much, no matter how excessive it becomes.

What all this comes down to is that exec's pay simply doesn't have to obey any market rules of supply and demand. So it's not surprising that these ludicrous pay increases over the past few years have occurred. I can't see what mechanism can be used to prevent this. Bring back Denis Healey and 75% top rate income tax?

the average remuneration of FTSE 100 chief executives has risen 295% over the past decade

I've been saying for more than the last decade the problem with remuneration committee's is that all they do is say that our boy is worth an increase a bit greater than the average leading to ever increasing wage inflation for "top" execs

If you want to improve the performance of top execs you will need to smash the old school boy network and put the top people into these jobs, something Britian has never been able to do. Having top execs pay linked almost exclusively to share price may though have a small impact on controllong excessive wages.

to be honest, on my very modest pay, i would still give my best if i was paid 50% more or less, however it dosen't seem fair to underpay somebody's genuine worth

It is obvious that the free market is not operating properly in executive pay. There are clearly a lot more people who would like to become senior managers and company directors than there are posts available, and many of them could not conceivably be worse than those actually employed.
If the free market operated when supply so clearly exceeds demand, the price (their pay) would go down.
We ended the restrictive practises of the unions under Margeret Thatcher. Isn't it time we ended them in the baordroom?

Could this be a chink in the armour of the 'razzle-dazzle them' brigade?

The 'I'm so wonderful you must pay me vast amounts of money' type.

The, 'I'm more important than the company that I run' lot.

I really, really do hope so.

#5 and #10 have it spot on: the pay might not motivate someone to work harder, but it doesn't mean the company shouldn't offer it. It might just be the market price (i.e. if Shell doesn't offer £10m, he will go to the company down the road offering £9.5m).

If I had paid 50% more or less for my computer, it wouldn't perform any faster or slower. It does not follow that I could offer 50% less and still expect the shop to provide me with one.

As #18 hints, the question is why do we have such a (perceived or real) lack of supply of good executives. I certainly think there is a shortage, which says something either about management education, or the willingness of many executives to do real intellectual analysis on their work in order to make themselves better at it. Consider how a football team works. It can either buy the best players from another team for £30 million once they're proven; or it can develop its own academy and train young players, bringing them up through the ranks much more cheaply. Maybe Alan Sugar's process is not such an unrealistic one after all.

Another great piece of journalism...

One man, on the verge of retirement and recently given a hiding by his shareholders, says that he wouldnt have performed differently in his job if he was paid less or more.

This is then extrapolated over all senior employees and in all industries to come up with the conclusion that executives are paid too much. Conincidence that that is what the audience wants to hear?

Of course the fact that Mr van der Veer is an individual and thus maybe motivated by different factors to his peers?
Maybe the fact that he's retiring and doesnt want his house and car vandalised ala Fred Goodwin might be a motivating factor?
Maybe the fcat that he works in an industry where your bottom line is ruled by the price of oil over which you have very little control should at least be mentioned?

Fact is there are a myriad of reasons why execs are better paid than White van drivers. Suffice to say none are mentioned in the articles.

In my opinion execs are overpaid, although not wildly overpaid as the general consensus seems to be, but none of the valid reasons one could argue for overpayment are listed in this article.
Instead Pesto has simply done a hatchet job and told all those baying for blood exactly what they want to hear.

I expect this in the Sun but hold you to a higher bar Robert. Very, very poor journalism.

Your fascination with remuneration is simply the politics of envy. A company pays what it needs to to attract the best people and keep them against enticements elsewhere. In a market where there is strong competition for talent, these incentives can be large, in a recession less so. Thus the market is self correcting - when there is lots of money around, employees get more, when there is less everyone gets less. Surely this is a sensible system and better than one where pay is the same, no matter how the company does?

isnt the real story....Lloyds to close all C&G branches....?

I find it incredible that there is still debate on executive remuneration.
There is no shareholder democracy and as the boss of Shell points out there is no correlation between remuneration (beyond a certain level) and results.

I only ask one thing. Remuneration across the economy is a scale.
If limits are required at the bottom to prevent exploitation, then surely there is no justification for not having a limit at the top to prevent abuse.

The cosy relationship between fund managers and company boards does not protect the fund holders value. The fund managers are reassured their targets (and as such their bonuses) will be met. As a consequence these fund managers carefully courted by company boards are not motivated to make the required waves.

We all know that beyond a certain level of pay, say for example 10 million, there is no motivation in receiving 11 million. The value is lost in the scale of the numbers. All that you end up with (just like football players) is a race to justify yourself by comparing your pay with your peers with the continual drive to validate you are the best by out earning them.

I exclude company owners from this need to limit remuneration. If you own the company, it is your choice how you control, dilute, distribute, or dispose of your own property.

In all honesty if a fix relationship between vested interests in an organisation was established, then the economy will function much better.
With a fixed 10 fold limit on Executive base pay compared with the average none executive pay within the organisation that would cure the issue. Then to motivate a modest earning executive, you need to plan a bonus based on profit and shareholder return. This should be paid at a flat percentage rate with 20% paid on the year earnt, 20% invested in shares within the company undisposable whilst an employee of the company for 5 years. The remaining 60% could be paid as a cash bonus in 5 years time based on a real measure of sustainable benefit to the company, namely the returns generated have been enduring and sustained. Without it, this bonus is progressively lost to measure the respective failure.

System solved. CEO wants a 10% pay rise, he has to increase average pay by 10%. This then affects the profit, the returns for shareholders, his bonuses, and his shareholding. No more losing on the roundabout but winning on the swings.

I am continually amazed by the number of snide comments about Robert Peston's blogs. I wonder are other people like me in that once I get a whiff of the brilliance of the writer I stop reading. Personally I look forward to his blogs and find them both interesting and informative. The blog today simply reminds us of the great iniquity that the Club is perpetrating on society, and we should be continually reminded of it.

And Mr Osborne's words are backed by just what threat? It's business as usual. The right words, the right postures, and then NOTHING. That is Britain 2009 for you.

Osborne is no better than the social workers who allowed Baby P to be murdered. The apologies were made; heads nodded gravely; "there are lessons we have learnt from this; it will never happen again." And a week later another child is murdered.

WELL THAT SAYS IT ALL!! HA HA? MOST OF THE CHIEF EXECUTIVES I MEET ON MY

TRAVELS DONT SEEM TO KNOW ONE END OF THE BUSINESS THEY ARE RUNNING FROM

THE OTHER,THEY USUALLY HAVE NO IDEA WHAT THEIR STAFF FACE ON A DAILY

BASIS NOR ARE THEY INTERESTED.EXCEPT OF COURSE WHAT'S IN IT FOR THEM!!

It is all about SELECTION
+ Remember Primaries for MPs
+ Trials for Athletes
+ Tasting for Products
+ Evolution for Organisms

What you get, with ZERO IN is ZERO/NEGATIVE OUT eventually...
- ZERO diversity (not talking race here)
- ZERO new input (We all know hat happens when there is ZERO new cash input; and the famous INBREEDING of Monarchical families &etc and the result of that)

It is easier to inbreed
Nepotism is the best from the insides

but surely incestuous relationships in and intra corporate boards is a major culprit here?

think of it the way the business titans think of it:
more evalue for money
reduce costs (costs of employing executives...)

but that human thing comes in...

the rules are for others not for self..

and notice too how the media self-regulates analsysis of events depending on jurisdictions - so no regime is corrupt; economic crimes - meant or metaphoric...

the change to come will not be premeditated ...

MEANWHILE THE C & G WILL CLOSE IT'S DOORS 1500 PLUS JOB LOSS & A BIG

BONUS PLUS REWARD FOR FAILURE FOR THE MASTERMIND OF THAT SILLY DEAL.

How do you tackle inflation in the CEO market? Maybe the BoE should flood the financial world with more money-grabbing, self-satisfied, self-aggrandising executives.

It's obviously what the world needs.

Presumably most people will tend to do a job as well as they comfortably can. One's salary reflects either how little you are prepared to work for on the one hand, and how much someone is prepared to pay you to secure your services so that you don't work for someone else on the other hand.

Perhaps more interesting would be what would happen if a company decided that it wouldn't pay a huge salary. Probably there would be very competent people very willing to work for a relatively smaller salary because they enjoy the responsibility.

So whilst we are having a discussion about salaries Robert, how about you pony up yours?

Over the last 12 years would someone in your position have received a huge increase?

"...there's evidence from Wall Street that the big bonus culture is waking fairly rapidly from its short slumber over there".

No surprises there. What amazes me is the level of naivety displayed by governments who hand over huge piles of taxpayers' money to shore up banks on the expectation that they will somehow "do the right thing" (i.e. lend to taxpayers who need it, refrain from handing out colossal rewards for failure). In truth, the banks see the pile of taxpayer cash not as a sacrifice for the greater good but as just another source of funding open to them which enables them to remain in the black and pat themselves on the back for a job well done.

Is this a statement of intent or just rhetoric? We all know his comments are true. Lets make remuneration committees subject to Shareholder Scrutiny before decisions are made so that the shareholders can see whether they are getting it right or wrong. If every decision is wrong and all the best people leave all of the organisations then there will be no where for them to go

For those who asked, there is clear evidence that high chief executive pay does nothing for the performance of the chief executive, but does attract higher quality junior executives to the company. Expecting companies to lower their executive compensation is akin to asking the fox *very nicely* to please stop eating the chickens. The only way executive compensation can be optimised for the country is to implement government regulations that limit all companies equally. Now what was I saying about foxes in henhouses?

"WE'VE BEEN REWARDING THESE CHAPS FOR VALUE DESTRUCTION ON A COLOSSAL SCALE".
Robert, that is it in a nutshell.
That is why pensioners, shareholders, savers and the public in general are so infuriated with them.
George Osborne is also right.
ALL banks are effectively being "propped up" by taxpayers.
Serious re-imbursement of the taxpayer by the banks should begin before even medium bonuses re-start. Even the "wealth creators" must realise that is morally necessary.
People are seeing "green shoots" now, but make no mistake.....WE ARE GETTING ROUND THIS RECESSION BY MORTGAGING IT.
We will be paying for it in heavy taxation for decades.
The taxpayer is even "propping up" the property market....that is a historical first.
Beware any future house price rises.....it could all end up on your tax bill.

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Here's a suggestion. Why doesn't the financial employees bonus reflect the returns on their customer's investments.

If I get 4% annual dividend - all employees get 4% annual bonus.

Simple!

There is no shortage of first rate executives prepared to work for a fraction of what is paid to today's city slickers. Finding them would be as easy as firing the CEOs of the FTSE 100 companies and asking for applications from those prepared to work for £120,000 p.a. Mind out of the doorway, though, or you will be killed in the stampede. And you know what? You will attract first rate men and women who never get a chance because every such appointment at the moment is decided behind closed doors by a select few.

If and when I am elected New Protector of England every company, corporation, quango and tribunal in the country (including the BBC), dependent on public finance, will be precluded from paying any member of staff more than the New Protector himself earns i.e. £120,000 p.a. I am prepared to guarantee there will be no shortage of first rate people applying for the top jobs and we may actually begin to get a service out of these entities that we have never known before.

The rest of the city slickers will lend the exchequer everything they earn above £120,000 p.a. in return for negotiable treasury notes with an unspecified date of repayment. As they are negotiable instruments their owners will be able to trade them. Oh and there will be legislation preventing the smart guys from setting up those wonderful deals by which they take their income as 'capital' at preferential rates of CGT.

Once we have paid off the national debt, and balanced the budget, and given the country sound money, all these tough pieces of legislation can be reviewed and the necessary changes made.

The people who got us where we are must pay for it, not the man in the street who is being crushed by the burdens their evil ways brought on him.

It really is nice to dream because it is not going to happen, is it? And we all know why. Everybody chatters away about the wickedness of the politicians, and everybody wants change, so what will they do? Groaning and complaining they will go to the polling booth on election day and put their cross next to the name of some Tory, Labour, or LibDem candidate because they have been too idle to find an alternative before polling day.

We richly deserve the ghastly governments we elect.

It is simply a home spun myth that the chief execs are so valuable that they deserve such extraordinary salaries to keep them. Complicity within that ruling elite is rife to maintain the status quo, to spin the myth that they create wealth for all and everyone benefits.

The simple truth is that the economy has generated huge wealth via technology, efficiency and mechanisation of all our key needs. That huge wealth is being channelled into a very few hands, not because they deserve it or created it, but because they are allowed to do that and have sucessfully sold the myth that we can not sustain it without them.

Somehow their monopoly of greed has to be broken but without breaking the system and throwing us into chaos.

What they are doing, in my view, amounts to something akin to a 'white collar crime against humanity'.

The wealth created through globalisation, and technological advance should not be used to create a 'super class', it should be used to change the world for the better.

I have no problem with how Bill gates got his wealth and how he chooses to use it, I have a massive problem with how William F Fuld Jnr aquired his wealth and what he does with it. For example when he felt there may be a chance of prosecution or claw back of some of his bonus, he transferred much of his assests to his wife. He clearly has no concept of or desire to help people (he could help millions is he chose to) is this the type of person society should accept is rewarded in the way that they are?

I bet Bill Gates is a much happier and contented person than William F Fuld Jnr (former chief exec of lehmans), it all comes down to greed.

Jericoa



and . Only entrepreneurs who bring real value and creativity to society should be rewarded in the way the chief execs of tha banks (for example)are.

We've known this for a long time. Beyond a certain point the money becomes irrelevant to performance, this also happens after a period of time unless the basic wage is low and bonus high as in the case of commision salespersons. Is this supposed to be a reveleation Robert? The problem is it becomes the norm and it's regarded as part of the pay package irrespective of performance and more a retention bonus. This then leads to higher and higher awards based on turnover not profit and performance with tactical rather than strategic gains being rewarded. It usually ends up in a right sorry mess as we've just seen. Institutional shareholders need to wake up, people will start wondering if trusting them with their savings is the best use after all. Having always held my own portfolio, I have seen how difficult it has become for shareholders to challenge Boards. Institutional Investors hold a block vote which eclipses most private investors, but use it appallingly badly in the vast majority of cases

34# goldensands - "the change to come will not be premeditated ..."

It might be pre-moderated, though

I don't understand why Robert Peston is taking this approach. It is perfectly understandable for Jeroen van der Veer to say what he has. He is saying that he will perform to the best of his abilities whatever the package is. The package should give greater rewards for greater success, but ultimatley the executive should perform to their best in all circumsatnces.
As for rewarding senior execs for 'value destruction', this cannot be measured in share price only. The stock market value of a company at any point in time is not necessarily its true worth, particluarly when the market is being driven by sentiment as it has been for much of the past 15 months.

On the point of bonuses being paid when targets were not met, that is a different matter and one that should not have come to pass.

The increase in pay may only be for a year but if you are close to retirement it adds a huge amount to the pension pot and thats for life!

Jerome van der Veer has finally exposed the self-evident myth, i.e. that the higher the rates of pay lead to the best people running organisations. This is nonsense and always has been. Frankly, almost anyone could run these companies and make money. It ain't rocket science. Indeed, if you have no moral backbone and are prepared to break all the rules even better.

Anyway, it makes not a jot whether they are any good or lousy, for once you have climbed the greasy pole you are guaranteed to be paid over the odds irrespective of your performance, cite Andy Hornby (HBOS), Adam Applegarth (Northern Rock), Michael Grade (ITV), etc.

As for #28 PeterJ42 and tirade about politics of envy - it is about time dinosaurs like you wake up and face the facts. Events and experience have consigned your ideology to the dustbin.

let's just say from know on the the executives get the same percentage pay rise as they give to their work force, ditto any bonus.

Yes, if you want to know HOW TO RE-MORTGAGE AN ECONOMIC DISASTER, ask Gordon Brown, he's an expert at it.
And for all you history students....we had to re-mortgage a national disaster once before....that one was called "The Second World War".
This one is called "New Labour".

15 neverspeakbadly and 45 newProtectorCromwell
I agree with both these comments.

But... #7 wykhamist wrote:
Now that times are tough, the public are getting increasingly angry about the asymmetrical way people are rewarded in this supposedly fair society.

The one group of people who are truly deserving of accumulating great wealth, namely entrepreneurs who put heir own capital on the line, are now impeded by high taxes, cost of capital and onerous legislation.

===============

You are being satirical of course. Using the risk criteria, members of the very oldest profession should desrve to accumulate even greater wealth for what they risk and "put on the line".

Do you not agree?

From each according to their ability, to each according to their need.

1. Shell were proposing to pay out on share options when performance criteria hadn't been met. I don't recall any huge uproar about how the targets weren't meaningful when they were introduced.

2. if he freely admits it would not make a difference to his performance, surely a responsible remuneration committee would have to answer to shareholders if they didn't reduce his pay

3. I've never seen any guidance from remuneration consultants that talk about specific case - ie; X is worth more than the market rate because brings A, B, and C skills along with him

4. I've never seen any remuneration committee seek to pay less than average

5. How on earth aren't salaries going to rise when the average keeps getting adjusted upwards?

6. Andy Hornby should be paid based on the additional value he creates for the business. I know this is a theoretical basis, completely devoid of any application in the real world, but ask yourself this, do you think it would have been better or worse had he not worked at Lloyds TSB...?

"44. At 1:02pm on 09 Jun 2009, R_Souls wrote:
Here's a suggestion. Why doesn't the financial employees bonus reflect the returns on their customer's investments.

If I get 4% annual dividend - all employees get 4% annual bonus.

Simple!"

Why should they do that? That could awaken the peasants. That is how we are seen by them anyway. Anyone feel otherwise, please tell me why I should not feel like a peasant.

It does seem that offering huge salaries does attract those who in the end (despite all their comments to the contrary) people who serve themselves. They're excellent at making money, but again, mostly for themselves. And everyone at executive/board level do seem to be each other's friends. How many of you here are are in a little bit of fear that your bosses could sell your company down the river, or simply make you redundant any day now?

Finding a good boss is meant to put a company in safe hands. At the moment, the boss has his hands in the Safe...

Execs at John Lewis and Waitrose have always got paid significantly less than similar size retailers which are listed on the stock exchange.

This doesn't seem to have made them worse performers however. Maybe they have been better in fact as management has had a duty to all staff (who are in effect the shareholders/partners) which may encourage longer term view.

As someone has already pointed out shareholders won't rock the boat by voting against remuneration as it has a little affect on the overall profit even though it is sometimes unneccesary.

Other staff however have now lost their powers due to such low union membership (thanks to Maggie) and therefore can't get the rises they deserve!

Execs need to be careful because as the gap widens further so will crime and social unrest! Maybe this is were government should step in. A party that sticks up for the low paid and is not 'comfortable with people getting filthy rich' doesn't seem to exist anymore.

Maybe thats why Labour are so unpopular!

I don't have a problem with senior business leaders earning large sums based on performance.

BUT I do think that, as has been suggested with banker's bonuses, these payments should be delayed or made in shares that can't simply be sold the moment they are issued. It may take several years for bad decisions made at the top to filter through into corporate performance and vice versa.

And paying bonuses even when the targets to which they've been linked haven't been met is nonsense. The competence of any board proposing such payments should seriously be questioned. If such payments are to the board members themselves (as in van der Veer's case) the integrity of the board and its members is also open to question.

We've been through the expenses of MP's and Lords. We've highlighted the bonuses and pensions of FTSE companies and banks.
I think it's time for us to delve inside the BBC and it's bonuses and use of public money.
The total one sided reporting and personal opinions of it's reporters is a disgrace.
And don't get me started on David Dimbleby and his hosting of the Euro elections program.....

It never ceases to amaze me how many of us believe the hype about markets being self-correcting and supply and demand being responsible for pricing and wages. It's simply not true and there are vast numbers of talented, clever people who are not being paid what they are worth throughout the whole of our society.

Essentially, companies will pay as little as possible to most of their workers and as much as they can get away with for their chief execs. It's not because CEO's add value or are even particularly good at what they do but more because paying a CEO vast sums of money makes your company appear solvent and adds kudos. It's a circular argument in that people belive the CEO is good because he gets paid a lot and so he gets paid a lot because he is seen to be good. Any performance is secondary. And I agree that huge numbers of people in senior roles are there by default. We do not live in a meritocracy - unfortunately.

Meanwhile people throughout the rest of the company (and the majority of workers in society) are paid small sums of money, with very few perks, bonuses or even yearly increments. This is not because they don't deserve it but because the level of their pay makes no difference to the image of the company and therefore doesn't drive investment.

People have been complaining about MP's, CEO's, musicians, actors and footballers for years but it was explained away as the politics of envy. I don't mind anyone earning a lot so long as they deserve it and others are not paid less, or are exploited, for this to happen.

Capitalism is broken, as those of us who have studied it knew would happen. We urgently need to find a solution before a more terrifying ideology takes hold.

Millions of us are the ultimate owners of the UK's companies listed on the Stock Exchange by virtue of our pension fund investments and, if we are lucky, other individual funds that invest in UK shares.

I would like it made easy for us, as of right, to be able to cast the votes due to our ultimate share holdings at companies' annual general meetings (AGMs) (by post in the case of many of us).

I know that's over 600 AGMs per year, but we could concentrate on the ten biggest firms at first. We can then vote down directors' pay packages, and if we achieve "No" majorities and are ignored, we vote the directors out next time and replace with independent ones.

There will be a smoke screen put up of "it's too difficult and too expensive", but in the current stage of the Information Revolution it actually could be done quite cheaply. We'll just need a law to make it happen (please keep the new law really simple).

Do you agree with me?

Robert, Fred Goodwin appears to have gotten away with his obscene pension despite Harriet Harman`s protestations that "it will not stand". Obviously the politicians` focus has been elsewhere over recent weeks but I can tell you from speaking to many of my friends that the sense of injustice over Goodwins pension is still there. It must not be "swept under the carpet" In order to keep the pressure on we have to rely on commentators like you doing the politicians job for them by keeping the spotlight on this greedy individual. Keep up the good work.

FTSE100 as repository for good portion of the country's wealth lost 23%.
We got an extra +44%.
The exec's rewards themselves +295%.

No wonder we are in such debt.

Robert, I would like to see some resoning as to why when Oil was over $140 dollars a barrel the average price at the pumps was £1.20 a litre and and now its nearly $70 a barrel the average price at the pumps is £1.01 per litre.


Can you do the maths for me ?


Oil companies like Bankers and these polictians are taking us Joe public for a ride...

To run a large company requires leadership, that is all. The nuts and bolts are taken care of by the staff. We seem to arrived at a point where we have allowed the senior positions of our largest companies to be dominated by leaders who use money to gauge their importance. Yet not all leaders do. Despite frequent derision the very large public sector organisations are run by capable leaders, the largest charities are likewise run by excellent senior executives. Their motivations might be power, paternalism, making a difference or a strange combination of all three but they work for about 5% of a FTSE 100 package. There is no reason why these skilled administrators cannot make money for shareholders and may, indeed, make more with a longer term outlook not solely motivated by their annual bonus.

65. At 2:32pm on 09 Jun 2009, Yuppski wrote:
Robert, I would like to see some resoning as to why when Oil was over $140 dollars a barrel the average price at the pumps was ?1.20 a litre and and now its nearly $70 a barrel the average price at the pumps is ?1.01 per litre.


----------------------------------------------------

Bury the conspiracy theory handbook for a wee while.

Breakdown as follows:

Petrol Fuel Duty - 48.35p

VAT (17.5%) - 14.9p

Refinery Petrol Costs (incl oil cost) - 31.75p

Forecourt Costs - 3p

Forecourt Profit - 2p

https://www.whatprice.co.uk/petrol-prices/cost-litre-breakdown.html

The oil price probably only acocunts for 20p or so in every litre of petrol with taxes, manpower, middle-men profits and transport making up the rest. These costs arent linked to the price of oil and are fairly stable.

He may not have performed any better or worse at the large amount he was paid, but at some point he would presumably perform worse. On some sliding scale somewhere, at some point, he'd care less about doing a good job; maybe not at £4m or £3m or even £2m, but at some point he would perform worse. However, that's not really the point; the point is that these guys are, for the most part, very talented at what they do, and so companies simply pay for them not to go somewhere else. That is, it's far better for Company X to benefit from someone's talents - even if they pay over the odds - than for their competitor to obtain his talents (and inside info').

Henry
UK Insurance Direct

The real issue here is whether such a vast CEO remuneration package serves the company.

If it encourages a CEO to make a fast profit at the risk of the longer term sustainability of the company, it's a bad idea.

If the money paid out to the CEO could have been better invested elsewhere in the company - it's a bad idea.

If it perpetuates an old pals' act of these guys on my Remuneration Committee always give me a big hike in wages, 'cos I do the same for them when I sit on their company's Remuneration Committee - it's a bad idea.

If it alienates investors or customers - it's a bad idea.

If the job could be done equally well by someone on a more modest remuneration - it's a bad idea.

If you personally are the CEO shovelling the dosh into your trouser pocket - it's a good idea.

21 pretty much sums up Shell

Peston STILL punting his ZanuLabour line I see - check Pestons background and his cronies - hardly impartial and most certainly BIASED.

The banks are repaying government debt both here and in the US, couldn't care less about lending out the stuff, just want out from under, a good lesson served up to a lot of folk here, don't borrow from them, get the banks off of your back ...simple.

Now trying asking the same question about enhanced effort vs reward of our footballers - do they play any better for earning 5 times what they earned 15 years ago? They are the ultimate "fat cats" where even the most average of players earns more in a week than the average person earns in a year and the fattest of cats (Beckham et al) earn £50m a year (taking in sponsorship etc.) - and yet what has he ever achieved?

The notion that we pay 300% more for 23% less is disgusting. However, we have the answer in our own hands. Those who understand these things and are aware of the figures in good time (regulators, auditors, analysts, the media etc) should name and shame, and, where necessary, particularly where government funds have been deployed, the appropriate Government Committee should require an explanation for any bonus that is unreasonable in the light of the particular company's performance. This should be carried out as soon as possible after the end of the firm's financial year (say within a month). Following on from that, more power should be given to shareholders to require Directors to give a proper explanation once the analysis is complete. The recent Lloyds shareholder meeting should be used to demonstrate how not to do it, where Daniels and Blank smiled condescendingly at shareholders criticism when every one present knew that the Directors had failed the shareholders in one of the most cavalier and disastrous "adventures" ever undertaken by a British company.

No. 73 FutureFinancier

Is that a business question or a sporting one?
If it's a business question - he sells an awful lot of shirts, which is why big clubs still like to sign him.
If it's a sporting one you're on the wrong page.

Yuppski:

There are two reasons for the 50% fall in the oil price only translating into a c.17% fall in the price of petrol at the pumps.

The first is that the pound has weakened significantly against the dollar - by 20% over the last year. The oil price in pounds has therefore not fallen as much as it has in dollars over that time period.

Second, only a part of the price of petrol is made up by the cost of its raw material, oil. A large part of what we pay at the pump is actually tax, which unsurprisingly has not fallen by 50% over the last year!

So it is actually quite logical that the petrol price in sterling should not have fallen so dramatically as the oil price in dollars.

Hope this helps.

One of the most ridiculous things you ever hear is 'we'll make an executive decision'. Very useful, as it shows the speaker is more interested in self-aggrandisement than anything else. Anyone with an ounce of intelligence would make an informed decision. Not these people.

Sutara - "If it perpetuates an old pals' act of these guys on my Remuneration Committee always give me a big hike in wages, 'cos I do the same for them when I sit on their company's Remuneration Committee - it's a bad idea"

I was lucky enough to have some time with a Nobel Prize winner last month - I won't mention his name but even in his late 80's he was as bright as a button! Anyway, we got onto the subject of exec remuneration and as he has been a non-exec for a number of large companies he agreed this is indeed how it works - the whole point of an exec of one company agreeing to be a non-exec for another is to get on the renumeration committee and pump up the rewards as much as possible because, as they all index to one another, it will inflate their salary later. The benchmarkers/recruiters are all in on it because they get a fee based on a % of the remuneration so every incentive to inflate there.

The only people who lose are the business owners ie you and me through our pensions. But because our individual ownership is small and control is given to fund managers there is real no accountancy. Also, because most funds performance is related to an index benchmark, fund managers have the perverse incentive to see these large companies run down by greedy execs. Why? Because they can then be a little 'short' in them and so outperform the index tracker. As their remuneration is based on this outperformnce of the index and not an absolute return, they are quids in if a few large companies are run into the ground by crap execs who cream off a load of cash. They do not work in your interest.

This is where I would legislate. If you control the pension funds, you will control the behaviour of the execs. Legislate to give pension fund managers payable by absolute return to the pensioners and nothing else. I don't care if a good CEO is paid £MM if he delivers - but i want the pension fund managers to ensure they do.

Re#5 Yes it is. There are thousands of talented people who could be CEO of a FTSE100 company. The supply is huge but the availability of the jobs is controlled by the same people who benefit from the insanely huge salaries. There is no true market in these jobs. Chairman of a major oil company? Easy as falling off a log

Yeah, that is disgusting. Once I watched an executive interview affected by the economy crisis, he said: "Yes, we are all ashamed of it." That was it. 'yes, and?....', that is their best shot of showing sorry. Typical, they live their life by their mouths.

Peston, on the other hand, why not post a chart of the least pay executives in the FTSE 100? So that I can do some research on them to see whether it is attractive for investment.

I earn £7.75 an hour as a simple little IT administrator type dude... if somebody called me up and said "Hey, we'll hire you for £10.00 an hour!" I would be 'in like Flynn'. If somebody else got wind of that and called me with an offer of £15.00 an hour, I'd be chuffed to bits. I WOULD NOT turn round and tell the second dude... "Hey man - I'm not worth that much - I'll take £12.00" That would be like shooting myself in the foot or, should we say, looking a gift horse in the mouth.

This Jeroen van der Veer looks like a nice chap, smiling and all, I say good on him!

All these grumblers with their repetetive "pigs in the trough, disgrace, despicable pension pot ad infinitum" must be kidding themselves.

If they had reached the dizzying heights of Jeroen, would they really be turning that money down??

I, for one, would take every penny I could get my little mitts on...and so would 99.9% of the people who contribute to this blog.

Notwithstanding the disparaging comments from other readers, I find Robert's understanding of world finance to be astounding. He ought to be the Governor of the Bank of England. There is no one more qualified.

RE 1. Horned_Devil

"Yes ok, CEO's pay is very high - I think we get it now!"

No, I don't think you do. Nor do a number of other commenters here. Lavish, unearned executive salaries are not a concern because of fairness, they are a concern because of economic effectiveness and efficiency. Those words are a whole lot more boring than outraged comparisons between failed bankers and, say, underpaid nurses, but they are the crux of the problem. Note 69 puts it well. The fundamental question is what do these people deliver in return for the money? There is never a credible answer to this because there can't be. In too many cases the answer is not much and in a depressingly large number of cases the answer is massive incompetence and failure.

Overpaying inept executives is destructive on so many levels.

It creates a culture of entitlement. After all, if the time servers in the big offices get mega bucks for making bad decisions, why shouldn't the rest of us get a pay rise for nothing too. This problem explains quite a lot of Britain's historically "militant" unions.

It adds a cost burden to the company as a whole. For the likes of Shell this might seem small compared to the corporation as a whole, but it isn't just the CEO. In a company like Shell, the culture of over-payment for under-delivery will extend across hundreds of directors and senior executives.

It attracts the wrong sort of people. When the salaries are so high - even for total failure - it makes sense for greedy or ambitious people to grab one of these jobs, even if only briefly, regardless of whether they can in fact do anything useful. Ironically, once they get the job, they enjoy a measure of job security because the people that appointed them can't afford to admit that they hired an oaf into such a highly paid job.

It's instructive to look at some of the comments made by people who try to defend the status quo.

"5. It implies that supply of appropriate labour is less than demand, driving the price of that labour up. "

But the overpaid fat cats control the supply. When unions behave like this it's called a "closed shop". Unions do that sort of thing to keep wages high. Employers object to closed shops because they want to push wages down. There's a clue there.

"14. How many millions of income tax do Mr van der Meer and his ilk pay yearly into the British Treasury ?"

Nowhere near as much as would be paid if the same sum were distributed across a larger number of real working people that don't have access to accountants and tax havens.

"28. Your fascination with remuneration is simply the politics of envy. A company pays what it needs to to attract the best people and keep them against enticements elsewhere."

The envy remark is an ad hominem attack and doesn't deserve a response. The rest is called "begging the question". What it is really saying is as follows.

Why is the CEO paid so much?
Because he's the best
How do you know he's the best?
Because he's paid so much.

Now try to justify their salaries based on what they as individuals achieve. Start with the buffoons that bankrupted GEC Marconi.

It is telling that absolutely no one who seeks to defend fat cat salaries ever does so by presenting evidence of value delivered. Maybe that's because there isn't any.

#4 Melanchton

Hear, hear. Boycott Boots!

Every now and then someone honest pops their head above the parapet for long enough to say what virtually all of us know to be true. Of course, the norm in business is to keep your opinions to yourself. Clearly this chap earns enough to be able to afford a little candour in his old age. Lucky man.

I could run my company for a fraction of the cost of the present incumbent. But I'd need to brave a scrum of hangers on and time served toadies who would cross my path and see me die first. Thankfully my conscience and domestic situation are more appealing than the dog fight with the suits. Oh, and no-one would offer me the post in the first place.

We are all cleaners of our master's mess at the end of the day. Let's hope for a tidy master.

#4. melanchton wrote:

"Anyone for a boycott of Boots?"

Probably not. Quite like Boots the store and the people.

I am very unhappy that Boots now pays no UK tax. It is owned by Private Equity KKR. Is it not tax-based in Switzerland (Zug)? It is a net drain of many £million's from the UK every year.

In my opinion, retail business adds little, if any, to the national wealth. It is folly to provide or allow tax haven incentives to retail businesses. Someone will be happy to fill retail demands if they don't.
It is not as if retail shops can move overseas if th eowner are not happy about paying a fair rate of tax.

LDV van closure ignored, 100,000 people a month joining the dole queues ignored and Peston is still banging on about the corporate bad boys

On a differnt tack I see Mandelson and labour are still banging on about the corporate bad boys too hoping it deflects criticism away from who really is to blame

The salary earned by people in J van de Veer's position harms the rest of us because it buys this elite group access to so-called top lawyers and immunity from laws that the rest of us cannot avoid.

Wasn't this the case when Fred Goodwin left RBS with his pension intact, in spite of Lord Myners being there to see that the rules were followed? Fred and others like him can't be touched because some clever lawyer somewhere can run circles around any rules.

Morning Robert,
with regards to George Osborne's comments about taxpayer funding:-
He missed the obvious questions, firstly what happened to the 37Billion of taxpayers money which was given to the banks and disappeared. What precisely was it spent on?
Secondly, if the banks wish to repay any monies given to them by the taxpayer (to escape the onerous conditions attached thereto) where is this money coming from (Rights Issue from LLoyds for example)?
I can't understand this situation where the banks were insolvent six months ago and couldn't raise additional capital from the markets to lend out. Now they are making huge profits (assuming the auditors are signing off the accounts as a true and fair record) and the banks wish to pay off their loans so they can go back to "bonuses as usual".
Does this mean that they didn't lend ANY of it out but just kept on increasing their capital positions?
Furthermore, I notice that the BOE is being asked by the banks to consider buying short term corporate paper to ease the supply of capital finance to businesses!
As an expert in banking finance, Robert, we need your assessment of where we are now at with respect to the banking crisis.

As a shareholder in many ftse companies I have always voted against any salaries above £300k even though I knew I would be outvoted by the pension companies etc who do not understand fundamental finance and do not display common sense.

Rumuneration committees are a joke and only succeed in paying more self seeking club members even more for doing nothing.

The idea that somebody employed as a chief executive, in a company that invariably somebody else built up and financed, deserves to be paid a huge salary is a mystery to me.

Any senior executives of any value would be entrepreneurs working for themselves and not subject to criticism on salary or bonus.
However the average senior executive gets paid more for working for a ftse company than they could possibly earn as an entrepreneur and with no risk to their capital.

The prevalence of rediculous share schemes is also of concern. Most shareholders are stupid and believe giving shares options is more cost effective whereas it is severely diluting the value of their own holding. Many companies end up with the senior executives gradually taking over more control due to the size of there unearned shareholding.

Legislation is required unfortunately the current and previous batch of politicians are not capable of drafting anything suitable as they are swayed by the advise of the self seeking directors. You only need to listen to the questioning of the bankers in front of the parliamentary committee to realise that the politicians do not understand how to break through the status quo.

This comment was removed because the moderators found it broke the house rules. Explain.

Gordon Brown has mortgaged all our futures.
Last time this happened we had a war to win.
What did we get for it this time?
A couple of million over-priced houses and 50,000 super-rich bank staff.
And the CEOs?
Well, when you sees a monster gravy train rolling by, jump on it.

Ratnering about rubbish. (British jeweler Gerald Ratner says secret of his company's success is selling 'total crap')

92 I agree that Gordon Brown has mortgaged our futures. Now he intends to fiddle around with electoral reform (a dead duck given that the present system has given Labour twelve years plus in office) while failing to get to grips with the real issues:

1 Child poverty - an absolute disgrace after 12 years of Labour

2 Unemployment - on its way to 3m (plus all those left out of the stats)

3 The NHS - how typical that they have just woken up to the fact that we are living longer

4. Education - SATS, choice, leaving age, university places etc etc ,

5. Pensions - put right the screw up that the Government perpetrated on us all in 1997, and have been doing so ever since

6. Savings - are we ever going to be encouraged to save again?

7. Tax - stop emphasising taxing the rich as if it is going to provide billions and sign a pledge that every tax change they make will be up front and not hidden away in the budget detail.

8. Global warming - so far their response is lukewarm at best, and will prove to be a dereliction of their reponsibility towards our grandchildren.

Oh, and if they have time get rid of the House of Lords, especially Lord Snooty or whatever his titles are, and replace it with a second chamber drawn from a random choice of nursery school children - if anyone can spot the difference they should be awarded a tube of smarties.

There's a famous toy retailler that is going through its second round of "restructure" at the moment.
The company is posting improved sales and yet ploughs on with these cuts.
The CEO is on more basic pay than any previous CEO with huge bonus' unrelated to performance.
Just seems wrong

While not a FTSE, I just had a check and our MD has not had a pay increase since 2005 and at that time it was 8.3%, yes the bonus changes depending on performance but in all the remuneration seems reasonable and far from the numbers quoted above.What has our pirate said?

It's all back to the asymmetry of risk and reward.

As a small business owner I take most of the risk and the government gets most of the reward. The parasites who sit in the House of Commons take all the reward and none of the risk. The bosses at the top of most of these companies get rewarded richly while taking little risk.

Just for good measure the fund managers who are entrusted with billions of pounds in savings and pension funds take the rewards for their success while the maximum downside for them is being fired. The maximum downside for us is not having a pension.

RP continues to shine a light on the inner workings of high finance in a way that makes it clear and legible for us lowly mortals. We have long since accepted that these top executives are not actually worth and do not deserve the staggeringly high salaries that they receive and hopefully RP might help them to realise this. We need to get things back in perspective, to view money and profit as financial tools and not goals to be pursued to the exclusion of all other considerations. Meanwhile I will continue to live with my head in the clouds and dream of life in a meritocracy.

"It rather begs the question why it made sense..."

It does not 'beg the question' Robert. It might raise one or two however.

Surely the BBC can find writers that know the difference?

Corporate pay at the top level has not had any relationship to performance for decades. The CEO of Shell's remuneration is based on that of his counterparts at BP and other oil majors, carefully considered of course by remuneration consultants, and on the board of Shell's perception of their company among its peers. The CEO of Coca Cola will therefore always be paid more that that of Pepsico; the actual figures are meaningless in terms of motivation. If you study the remuneration reports of UK plcs, you will see that nearly all aim to pay at or above the median level of their competitors. Nobody suggests that they aim to pay less. We have all seen the result.