Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

Simon English: Executive pay is likely to ratchet up even further

Simon English
Thursday 05 January 2012 01:00 GMT
Comments

Outlook By my reckoning, at least once a month for the past 10 years, newspapers have been writing the following story or some variant thereof: Clampdown on runaway executive pay imminent.

These stories coincided with aperiod when executive pay has soared to ever more extraordinary levels, so it's always been hard to see where they were coming from.

Perhaps the authors imagined that if they wrote the story often enough, it would eventually come true. You can't fault them for effort.

With the economy poised to slump once more and another banking crisis one drunken trade away from reality, you might think there will now be genuine restraint in boardrooms. And you would be wrong.

My bet is that the next couple of years are going to see the pay of chief executives ratchet up ever further.

Here's why: when the stock market slumped in the wake of the first wave of the financial crisis in 2008, executive share options were left horribly underwater. This situation could not persist. Directors cannot be expected to merely do their jobs in return for a salary. They must be incentivised. Otherwise it's off to the golf.

So the options were in many cases ditched and new ones put in place at lower levels. Once the stock market completes its recovery (it will, it will) those options are going to be very seriously in the money.

One example from America: Mel Karmazin of SiriusXM Radio was granted options to buy the company shares at 43 cents. The stock is now around $1.80. Which means the value of his options has gone from an already tasty $35m (£22m) to a truly mouthwatering $165m.

It'll happen here too, if on a slightly less grand scale.

Prepare yourself to be very irritated...

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in