Once again, I see people fulminating about “top execs” being “rewarded for failure”.
As someone who has had some exposure to the processes behind executive compensation in several small corporates, I feel slightly more qualified to comment on this than many of the armchair critics.
The truth of the matter is that firstly, of course, many executives are not being “rewarded for failure”. By far the majority are being rewarded for successfully either meeting targets, growing a business, gaining market share or sometimes even “just” keeping a business above water is actually a success.
Secondly, executive bonuses are contractually agreed, and often negotiated around things that the executive knows he can achieve, rather than things that observers might regard as “success”. This failure, as with many others, can be squarely laid at the door of “Yoomin Rezawses” with their overweening sense of self-importance without the business nous (in most cases) to understand the premises and consequences being discussed.
But be that as it may, the contract is in place, and as distasteful as it is to contemplate Fred the Shred (or whoever) getting a massive payoff, he has achieved what he signed up for and the business is legally obliged to pay him every penny.
Lower-level employees are perfectly entitled to haggle with HR about their bonus plans, but of course, they rarely do. And in many cases, the bonus is agreed by the union “representing” the employee, so there is even less wiggle room. However, if you as a bank clerk were legally entitled to a Â£1000 bonus, and didn’t get paid it because your bank was doing something naughty or whatever, you’d be screaming blue murder. Legally and contractually, there is no difference, and rule of law is something we’re all behind. I hope.
And finally, there is the particular hatred of bank executives. I don’t really understand this. Buoyed by increasingly expansive government policies over more than a decade, they got reckless. However, all banks at all times were entirely compliant with all the reams of regulation laid down by governments, the EU and other international organisations. If the regulation really was going to protect us, it would have done, but it spectacularly failed to do so.
Furthermore, that monumental idiot Gordon Brown got so panicked by the idea of a bank failing after a decade of his policies that he decided to prop any shaky bank up. Instead of letting Northern Rock go to the wall pour encourager les autres, he protected his ego by declaring banks “too big to fail” and shovelling insane amounts of taxpayer dosh at them for ever and ever, amen.
And frankly, if you were looking at the prospect of a complete failure of your business and someone offered you all the money you could eat as a consequence of your failure, what the hell would you do? No risk, no arrogance is now out of bounds, because the state, the government, the rulers of the little people has decreed you above the consequences of your risk-taking.
Really, what did anyone think would happen?
HR, executive compensation boards and institutional investors are mere amateurs at the game of “rewarding failure.”