Jeremy Warner: Excessive pay is not yet dead


Outlook It's reassuring to see that even in these straitened times, there are still some able to whoop it up as if in the latter stages of the boom. One such is "lucky" John Tiner, a former chief executive of the Financial Services Authority, no less – lucky because he managed to get out of the FSA just before the proverbial hit the fan over Northern Rock and everything else.

Mr Tiner is one of the founding "team" at Clive Cowdery's "new" Resolution, a company which has just completed a £600m fundraising on the London Stock Exchange to be applied to the acquisition of unspecified "financial assets".

Even the purpose of the company, reminiscent as it is of the defining flotation of the South Sea Bubble – "an undertaking of great advantage, but nobody to know what it is" – seems to belong to a different age, but the remuneration structure is something else entirely. According to the prospectus, Messrs Cowdery and Tiner are not actually directors of the company at all, but rather partners along with three others of Resolution Operations LLP, which is to offer advisory and other services to the listed enterprise.

For this they get an upfront "formation fee" of £1m, and then £10m per annum, equal to £2m per partner, or 0.5 per cent of the "non cash value of the company", which ever is the greater. Oh, and of course all expenses. But there is more. On top, they are to receive a 10 per cent carry on all the "added value" that each of their acquisitions creates. This carry will be calculated on each transaction individually, so they get the upside of all the acquisitions that make money without having to share in the misery of those that don't. Then, finally, they get up to 30 per cent of the value of the entire company on any change of control. This appears to mean that if the company is wound up before any of the £600m is spent, they could get up to 30 per cent of the proceeds. without ever having to lift a finger.

Such an outcome might seem unlikely, but it did actually happen during the dotcom boom, when directors of a company called Just2Clicks enriched themselves beyond the dreams of avarice on raising loads of money and then putting the company into liquidation after deciding there was nothing profitable they could invest it in.

And they wonder why people get upset about City excess. I know Mr Cowdery has an excellent track record of value creation, and in some respects a well-deserved City fan club, but any-one who sticks money into this latter-day "undertaking of great advantage" needs their head examining.

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