Sunday, 29 January 2012
Being and not being serious about executive pay
My initial criticism of the bollocks being shat about the RBS CEO’s bonus was primarily that it pandered to the media’s dumbing down agenda of reducing everything to personalities an approach personified by the ghastly as he is vain Nick Robinson. It’s also a disingenuous attempt by posturing politicians to pretend they’re doing something, when they actually aren’t. Except they are. At this “historic juncture” I reckon what’s so fucked up is that this bonus furore distracts from more serious (and complex) underlying issues.
So lets start with some facts. Early last year the HSBC CEO got a £5.2m bonus and the Barclays CEO got £6.5m, the latter being famous for stating "(t)here was a period of remorse and apology for banks and I think that period needs to be over". Neither had as fucked up an organisation or as many stakeholders or pressures to deal with as Stephen Hester i.e. Hester is doing a harder job for less money than his immediate peers and even if these other bods waive their bonus this year, they’ll still have oodles in the bank from 2011. Plus there’s also however many dozen more hedge fund managers and traders raking in more than Hester except they’re currently doing their damndest to go Greek on Greece. So is Hester the unacceptable face of an over-paid, if currently state backed, capitalism? Nope.
Despite this Hester getting pilloried in the press allowed some rim-jockey retard on the Guardian website to state he should only get paid as much as a primary school headteacher, a primary school and a global financial conglomerate employing >100,000 people being apparently interchangeable institutions. Alternatively, such fucktardness illustrates the level of debate underway, one that ignores dull stuff like Hester could walk into an easier job tomorrow that pays him as much or more than he’s getting and do so whilst being widely regarded by his peers as the victim of a witchhunt. It also ignores even duller stuff like the RBS share price and credit rating would get humped due to the management upheaveal this would cause and the resultant perception of political interference i.e. the posturing going on right now would cost the taxpayer a damn sight more than Hester’s bonus.
Really what the above illustrates is how fucked up politicians have deliberately made things. The issue IS NOT should Hester get a million pound bonus, instead it’s whether the system that sets executive pay is working and to a lesser extent is Hester the right person for the RBS job. The second of these is easy to answer; given the RBS board and UKFI both seem happy with him, yes he is. The first part is the far more complex problem, because no it isn’t working and is in fact a growing social problem, but one no major politician appears willing to seriously address.
Rather, to get a sense of scale about what's going on you need to read the Bank of England Governor Mervyn King’s comments from the other day: “Above all else, we must strive to maintain support for a market economy and an open world trading system. They provided the basis for the great prosperity experienced since the Second World War. The tragedy of the financial crisis is that those who have suffered most have been those who bear no responsibility for it, and who, whether employees or businesses, accepted the disciplines of a market economy only to find that others were excused that discipline because they were “too important to fail”. But the legitimacy of a market economy will inevitably be challenged if rewards go disproportionately to a small elite, especially one which benefited from the support of taxpayers. Those taking decisions on remuneration, in the financial sector and elsewhere, need to understand that a market economy rests not just on incentives, but on the acceptance that the distribution of rewards is fair. That sense of fairness underpins the commitment to a market economy” i.e. the basic legitimacy of Western capitalism is being called into question.
Crikey, them’s big potatoes. And the political response so far? Wouldn’t it be nice if things were a bit more John Lewisy and that RBS bloke shouldn’t get a bonus should he.
What this leaves us with is a seemingly untouchable economic elite intent on remaining just that thank you very much and a professional political class too removed, too ignorant and too power-obsessed to appreciate let alone articulate a growing degree of discontent and disenchantment that can only grow as public sector spending cuts persist, high unemployment continues and yer average punter finds inflation is still eating away his or her disposable income, albeit at a slower rate, in an economy where you can no longer borrow cheaply enough to paper over the cracks.
Slightly smaller potatoes would be changing the principles used to set executive pay given the current ones continue to generate economic inequality (not just, as Vincey-tit is largely suggesting, tweaking how the existing participants participate). Are politicians likely to do this I wonder? To give some random examples Tony Blair of JP Morgan and Zurich Financial Services, Norman Lamont, a consultant and advisor to various investment funds, Lord Andrew Turnbull, the former head of the UK civil service who chairs the hedge fund BH Global, or Patricia Hewitt, the former health secretary and an advisor to Cinven, the private equity house that bought BUPA, all seem perfectly placed to help here given their vast experience of both government and business.
In the meantime I reckon the decision of our lawmakers to moan about an individual outcome of a broader system rather than changing the system is already inane to the point of being counter-productive. I mean at least yer old skool Tory knew that to keep taking the piss out us plebs you had to give a little and not do it so fucking obviously.
So in the absence of any meaningful paternalistic gestures here are a couple of suggestions to start the ball rolling. First, draw out the practical lessons from Andy Haldane’s analysis of finance sector pay, most obviously the linkage between it and ROE, and start drawing up regulations that apply them as widely as possible. Also, control for company size in setting executive pay more generally so rewards reflect actual performance.
Second, change the law so that companies can only have one redundancy policy i.e. no more individually negotiated employment contracts for senior and or high earner bods that contain golden parachutes. I’m quite proud of this one cos I thunk it up by myself. Obviously, compromise agreements would be a way round it, so all compromise agreements involving over say £100k should be subject to independent audit to ensure they’re “real” rather than attempts to get round any one size fits all policies.
There. And see what I did with the random examples? Did you? Yeah that's right I was illustrating how cunt professional politicians have a very practical vested interest in preserving the status quo.