David Prosser: If they want bonuses for doing well, dock their pay when things go wrong

Outlook: Making a part of pay conditional on performance might be seen as a 'reverse bonus', a device for making rewards less of of a one-way street

There is much to admire in the recommendations today of Will Hutton's Fair Pay Review – and not just as a blueprint for executive remuneration in the public sector, though the inquiry was not asked to consider private companies. In particular, the concept of an "at risk" element of salary would be an excellent way to redress thebalance on bonuses.

We have the financial crisis to thank for the way in which the arguments about bonuses have become so hotly debated. But this should not be a debate for the banks alone.

Nor should the argument be confined to the bonus element of executives' remuneration packages. These are currently constructed with no downside. Should executives hit certain performance targets, they get their bonuses. Should they fail to do so, no matter how much they miss by, the only loss is that the bonus is not awarded. The typical rewards package is a one-way bet.

In addition, the system enables executives to make the grand gesture without really being hit in the pocket. So bank bosses waived their pay-offs in the years following the crisis, but their salaries – generous by any measure – were unaffected. Colin Matthews, the boss of airports operator BAA, made much of giving up his bonus for last year after the December snow brought Heathrow to a standstill, but has just had a huge pay rise.

Mr Hutton's "at risk" pay element might be considered a reverse bonus, a device for making executive pay less of a one-way street. If someone is paid, say, £500,000 a year to run a company, it seems perfectly reasonable to make 10 per cent – or, frankly, a good deal more – of the salary dependent on some minimum-performance standards – like not having to close down for an extended period because of adverse weather for which you claimed to have planned, for example, or not having to ask the taxpayer to invest billions in your bank to keep it solvent.



The long wait for reform of takeovers

Today's appearance in front of the House of Commons' business select committee by executives from Kraft will no doubt prompt another round of teeth gnashing from those who believe the American food manufacturer shouldnever have been allowed to take over the British institution that was Cadbury. That Irene Rosenfeld, the chief executive of Kraft – and the architect of the Cadbury deal – is not gracing MPs with her presence will fuel the fire. Nothing upsets our elected representatives more than those who fail to ask how high when told to jump.

Still, it is to the credit of both the current Government and its predecessor that they have had no truck with calls for a "Cadbury law". This sort of protectionist nonsense would in the long term result in more British companies being frustrated in their attempts to buy assets in other parts of the world. Since Cadbury was sold, British companies have bought hundreds of businesses overseas, large and small, meeting with regulatory difficulties in only a handful of cases.

That is not to say, however, that Britain's takeover rules are not in need of reform. And if today's hearing makes that point again, so much the better, since progress towards an overhaul of the regulation, which was initially given impetus by the Cadbury row, is in danger of stalling.

In fact, the reform process is developing on twin tracks, but both are taking an age. The Takeover Panel is supposed to be making some more minor changes – including a ban on break fees, more demanding disclosure requirements and a shorter put-up-or-shut-up deadline – but publication of its final version of the new rules keeps being delayed. Not least the hold-up seems to be a result of lobbying from the private-equity industry.

The bigger stuff – a proposal for the disenfranchisement of shareholders who have acquired stakes very recently, for example, as well as an increase in the threshold required to back a takeover from 50 per cent – is not part of thepanel's remit. It is waiting for the Government to conclude a review of company law, at which stage it will incorporate the relevant changes. This is also taking too long, with proposals from the Business Department not due until April (and then, presumably, subject to further debate and delay).

The problem with Britain's regulation of takeovers is not thatforeign companies are allowed to buy our companies too easily, but something more serious. Thesystem is opaque, gives too much succour to speculative interests and is a disincentive to owners with long-term intentions.



More victims of privatisation

When the outsourcing company Serco told customers it expected them to share in the pain of the Government's austerity measures or risk losing future business, the public furore rapidly forced it into a humiliating climbdown. Would that we had that option must be the feeling amongst executives of Southern Cross.

For all the complications of the long-term care system, Southern Cross's predicament is simple. Its costs, courtesy of a long-term contract with the landlords of the care homes it operates, are too high, but impossible to cut. Its revenues, on the other hand, are subject to the demands of a Government that is trying to save money by making cutbacks in a less-fashionable part of the healthcare system.

That's a miserable situation for shareholders, of course, but the biggest victims of Southern Cross's troubles may turn out to be the 31,000 elderly residents of the care homes it operates. And this is just the latest of a myriad of examples of why the care-home industry was a poor candidate for privatisation in the first place.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech

Company reveals $542m investment in start-up building 'a rocket ship for the mind"

News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

Sport
CSKA Moscow celebrate after equalising with a late penalty
football

News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album