Maybe there’s merit in high CEO pay then?

The shambolic state of the Co-operative Group was laid bare in a scathing verdict warning that the survival of Britain’s biggest mutual organisation was at stake.

The Co-op has been undermined by “reckless” dealmaking, “shocking” levels of debt and governance standards far worse than even the banks before the credit crunch, according to Lord Myners, the group’s senior independent director who was charged with overhauling the boardroom.

In an exclusive interview with the Guardian, the City grandee who was installed as a Labour minister at the height of the credit crisis said: “I have observed the bad governance of the banks, but this is on an altogether worse level.

“The rate of deterioration has increased over the last half dozen years because of the recklessness of the strategy being pursued and supported by the board.”

You know, pay that enables the organisation to hire someone who can actually do the job?

14 thoughts on “Maybe there’s merit in high CEO pay then?”

  1. Except that their rewards don’t seem especially contingent upon doing especially well.

    In large organisations the idea that a central power can plan everything, and be attributed with the credit/blame for what results, seems as flawed as it is in politics. Some CEO’s do remarkable things.. but I don’t see why they should all be on £5m a year just because Terry Leahy had some skills.

    There’s a far better case for high pay at divisional levels, where management can both control the end product, and influence strategy further up the chain. I’d pay those guys more than the CEO for the same reason Christiano Ronaldo gets paid more than Carlo Ancelotti.

    I’m as bored as anyone of the ‘politics of envy’ crap that makes anyone with a weighty payslip a target.. but not so much so that I’ll look past the fact that big company CEO’s are, more often than not, well-connected rent-seekers giving each other ever-increasing pay rises in a massive circle-jerk of self-aggrandising cuntitude.

  2. So Much For Subtlety

    I do not doubt that there is merit in high pay but I doubt high pay is everything. After all, how does the Wikipedia page on the Co-operative Bank start?

    The bank was formed in 1872 as the Loan and Deposit Department of the Co-operative Wholesale Society, becoming the CWS Bank four years later.

    So if they do not have competitive pay now, I am assuming they have not had competitive pay since 1872. But they have survived for over one hundred years.

    So what has changed? Let me quote the famous Australian saying that the Labour Party used to be full of the cream of the working class and now it is full of the dregs of the middle class. That is, the Co-operative Bank used to be led by decent Old School, Church-going Working Class people who were denied a formal education because of poverty but who had old fashioned, sober, frugal values because that is the sort of people they were.

    Now they are led by sh!ts who did PPE at Oxbridge and are more interested in making f*cking stupid moral statements than running a bank. It has become about them and their moral preening rather than value to their customers. It is the decline of the British working class in a nut shell.

    Money is fine for a CEO. Especially in a bank. But it is not everything. Barclays should not have got rid of their special promotion scheme for the descendants of the founders. The Co-op should never have hired the sort of people who read Polly. All of them should have studied and valued their own history more.

  3. “You know, pay that enables the organisation to hire someone who can actually do the job?”

    Alternately, follow the advice of Warren Buffett (?), and only invest in a business an idiot can run because one day an idiot will.

  4. I reckon better advice is to hire someone who can perform and not one of your mates who needs a good pay packet so he can vote your pay up as a reciprocal gesture.

    Make it a contingent factor, if you get top money for good results, you get top losses for bad ones. Otherwise what we see is good result = huge pay packet; average result = huge pay packet; bad result = huge pay packet; and really rotten result = huge pay packet and often huge pay off to go away and screw up someone else. So the incentive for good performance is non-existent.

  5. The solution to the pay problem is simple: They get the big bucks AFTER they turn the company around. A very modest salary while they are working, agreed goals for what constitutes not just survival but return to prosperity for the group. Reach the goals–then Aladdin’s cave opens. Only then cos then it has been truly earned. Fail and you get the modest salary for the time you were employed and a cold goodbye.

  6. @ Mr Ecks

    That would be the way that the Private Equity investors incentivise their management… and they do get better returns than investors in listed companies get (where incentives are broadly set by institutional investors playing with someone else’s money.)

  7. So Much for Subtlety

    Mr Ecks – “The solution to the pay problem is simple: They get the big bucks AFTER they turn the company around. A very modest salary while they are working, agreed goals for what constitutes not just survival but return to prosperity for the group.”

    The problem with that is that there are lots of ways to front load the company while disregarding the long term health of the enterprise. Stop all maintenance for instance.

    The solution I would like to see is a modest salary plus share options, but share options at regular periods after they have left the post. So once the CEO leaves, having acquired a certain amount of share options, he cannot cash them in all at once. He gets some five years later, some ten years, some fifteen, some twenty and so on.

    Obviously if he has done a good job, contributed to the long term health of the company, hired and promoted the right people, 100,000 shares will be worth a lot more 25 years down the track than they would be if the company folded.

  8. SMFS: Nothing wrong with your idea–altho’ you would hope that whoever is hiring would have enough gumption to spot a short-termist wrecker. What was that bloke who fucked M&S called?–Greenbury was it?–the ideal corporate socialist business plan–sack every bugger and jack the prices up.

  9. So Much for Subtlety

    Mr Ecks – “Nothing wrong with your idea–altho’ you would hope that whoever is hiring would have enough gumption to spot a short-termist wrecker. What was that bloke who fucked M&S called?–Greenbury was it?–the ideal corporate socialist business plan–sack every bugger and jack the prices up.”

    That is socialism? Surely it is to keep everyone and pretend to pay them while they pretend to work. Like the government.

    You would hope they could but often they don’t. Remember Al Dunlap who was held up as a lesser Jack Welsh. But it turned out he had been committing frauds of various sorts to jack up his stock options since the early 1970s.

  10. So Much for Subtlety says:

    So once the CEO leaves, having acquired a certain amount of share options, he cannot cash them in all at once. He gets some five years later, some ten years, some fifteen, some twenty and so on.

    Ouch! So next off the company employs a numpty, and the company goes bankrupt within 5 years… The original CEO has no influence over that (and even less 20 years out).

    Given that share prices are generally not too bad at factoring in future expectations, I can see more downside than upside in any (lengthy) post exit run down?

  11. In this case, I seriously doubt that higher pay for executives would make any difference. The real problem is a 20-strong Board largely made up of people with next to no real business expertise, who are receiving what Myners calls “material financial reward” for directorships for which their only qualification is active involvement in the co-operatives movement. Furthermore, according to Myners, these people despise the executives, and do their level best to undermine any attempt to run the Co-Op as a real business. It’s cronyism gone mad.

    Lord Myners’ interim report is well worth a read. It’s a lot more balanced than media reports suggest:

    http://www.co-operative.coop/PageFiles/989317209/Progress-Update-of-the-Independent-Governance-Review.pdf

  12. So Much for Subtlety

    PF – “Ouch! So next off the company employs a numpty, and the company goes bankrupt within 5 years… The original CEO has no influence over that (and even less 20 years out).”

    You don’t think that succession planning is an important part of being a CEO? A lot of CEOs are Alpha male personalities who cannot stand other Alpha males. So it is fairly normal for them to drive out their more talented subordinates in favour of colourless Yes Men. Surely we want to give them an incentive to mentor, train and promote competent people, not just faceless suits who agree with them?

  13. The answer to Tim’s question is that high pay for CEOs is justified by (the seemingly weird explanation that) a good CEO can only add a little more than the ongoing business but a bad CEO can ruin it.
    There are a handful of star CEOs like James Dyson, Halford Reddish, James Hanson, Steve Jobs who can build something out of nothing or very little but mostly we pay CEOs not to destroy the company (which is very easy).

  14. John77

    For commercial companies I would completely agree. But – at the risk of sounding like a lefty – the Co-Op really is different. They have a Board that is not only incompetent but actively opposes professional management of the business.Their CEO left because he was systematically undermined, not because he wasn’t paid enough. When you have a Board that is hell-bent on destroying a business, no CEO can save it, however highly he is paid.

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