OUTLOOK :The crinkley top of business stardom
Wednesday 25 January 1995
The Institute of Directors wants top performers in business to be rewarded like sports stars and entertainers, which is a perfectly reasonable position to take. The trouble is the transfer market in executives in many industries is highly illiquid - theyare not available very often - and there is no business equivalent yet of audience measurement.
So we end up with abuses that bring into disrepute the excellent idea of a business star system - one that should routinely make men like Sir Paul Girolami into multi-millionaires for achievements like growing Glaxo into a world-beater.
Cedric Brown's salary at British Gas, which has set back the cause of the business star system many years, was clearly a stab in the dark by a remuneration committee as muddled and confused as the rest of us about what he is worth.
Indeed, just about every evaluation technique for directors' salaries is flawed. Inter-firm comparisons lead to pay policies based on above average remuneration, which of course continually raises the average. They make sense only where executives are genuinely mobile and being courted for jobs. Most are not.
Awarding generous share options ties rewards to those of the shareholders, but also brings an undeserved bonanza in a bull market. Options make sense only as a relatively small part of a total remuneration package, or when their award is based in the first place on genuine performance measurement, which is rare.
As with bonuses - on balance more useful than options - the key lies in agreeing those performance criteria, and especially in making sure they are based on improvements in shareholder value, itself a concept whose detailed definition is a minefield.
If pay consultants used a fraction of the time they now spend on comparative surveys of executive earnings developing workable measurement systems for executive performance, they might get out of this mess they are now confined to.
In the meantime, poor old Mr Brown is left defending his pay rise as "only" 28 per cent. To boot, it seems he may even have broken the spirit of the Institute of Directors' new guidelines. These sensibly emphasise the importance of relating pay to performance. The changes at British Gas consolidated Mr Brown's performance related bonus in a largely flat rate pay package.
- 1 Barbarians vs Samoa interrupted by sprinklers as fans criticise lack of Wi-Fi and poor seating at West Ham's Olympic Stadium
- 2 Watch the Supermoon live: How to see the brightest Moon of the year tonight
- 3 Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
- 4 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
- 5 David De Gea to Real Madrid: Real finally get their man with £29m bid for Manchester United goalkeeper
Caitlyn Jenner car crash: Driver who died in collision sued by surviving passengers for $18.5m
Watch the Supermoon live: How to see the brightest Moon of the year tonight
Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Turkey duped the US, and Isis reaps rewards
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...