Bosses to wait longer for bumper payday

 
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For as long as I have been taking an (eccentric?) interest in these things (oh gawd, almost 30 years), there has been a neurotic, agonised and impossible-to-resolve debate about how best to align the interests of a public company's owners and its senior executives.

Let's ignore (as always) the ginormous elephant in this well-appointed room, to wit that those acting on behalf of the owners aren't really the owners but their agents (fund managers appointed by trustees representing savers), and simply point to an interesting trend highlighted in the Financial Times - namely that for so-called long-term incentive schemes, there is (probably irresistible) pressure for bosses to wait far longer to get their mitts on shares they've supposedly earned.

The FT says one of the world's biggest and most influential investors, Fidelity Worldwide, has written to 400 big companies in which it has stakes, warning that it wants them to increase from three to five years the length of time that must pass before shares from an incentive scheme vest.

To translate.

When Sir Richard Rich, of Rich Pickings Plc, is awarded an incentive scheme stipulating he will be given many millions of pounds of shares so long as Rich Pickings hits certain fashionable targets - normally some measure of how the company performs for the owners relative to its peer group - hitherto he would not be able to pocket any of those shares for three years after the date of award.

What Fidelity is saying is that Sir Richard, and the bosses of all other substantial listed businesses, should henceforth have to wait five years for the big pay day.

If these incentive schemes aren't elongated, Fidelity will be minded to vote against any company's pay policies at the annual meeting.

So can we expect fireworks and strife in the current round of negotiations on bosses' pay on this issue?

Apparently not.

I've spoken to the chairmen of a few of our biggest companies this morning, and they say that five years will in the coming months be the new norm for the length of these schemes.

Or to put this in simpler terms, the balance between shorter term incentives (what we typically call bonuses) and longer term ones is being shifted towards the longer term.

In other words, Fidelity is pushing at an open door.

So good thing or bad?

Well, as is my wont, I will state the spectacularly obvious: we all had a pretty harsh lesson in recent years about what can happen if chief executives have big incentives to push up profits in a reckless and unsustainable manner to earn cash bonuses (a big hello to all our banks).

So if managers believe that the big money is to be earned by running a business in a prudent way over the longer term, owners and the economy should feel the benefit.

Hip hip.

Or at least that is the theory.

But whether we do ultimately reap a societal benefit from forcing executives to wait for their wealth will all come down to the execution.

And the issue here is the nature and complexity of the targets to be hit, for the shares to be handed over.

Right now, these incentive schemes run to many pages of formulae and clauses, such that they are almost impossible to understand - which gives little confidence that they can be monitored effectively by shareholders.

A cynic would say this is to make it easier for executives to manipulate corporate performance for personal gain - and that there is an all-too-effective industry of remuneration consultants whose raison d'etre is to help executives game the remuneration principles set by owners.

Maybe that ain't so. But would it be so terrible to have remuneration agreements that someone who isn't a grandmaster in 3D chess might be able to grasp?

Is it really impossible, with a public company, to establish, as and when Sir Richard Rich retires to his arboretum in Wiltshire and chalet in St Moritz, whether he has left Rich Pickings in better or worse shape than when he arrived.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +4

    Comment number 105.

    In other words we will wait until the general mayhem has died down and then take our erstwhile bonus...which we will always take no matter what anybody says....its ours i tell you...its ours

  • rate this
    +4

    Comment number 104.

    I've waited 4 years for a 1% payrise - so what's the problem?

  • rate this
    +6

    Comment number 103.

    Until our real government, Murdochglaxosachs, is deposed, nothing will change - the politicians are baubles - paid for like any other commodity.

  • rate this
    +9

    Comment number 102.

    @1:

    I think you'll find that it's the skilled workforce that will move this economy forward and not CEOs or senior mgmt who are so detached from the coalface of business as to be next to useless in reality. Networking and luncheons do not a business make: products, knowledge and R&D do.

    How do you fill your six figure day? Give us imbeciles a breakdown please.

  • rate this
    +8

    Comment number 101.

    Generally some good well informed comments on here, however, there are a few 'Boss Category' clowns who seriously think that most others aspire to be like them. The truth is, these people are deluded, fortunate that they have ant eater size snouts to snort from the trough and possess a ridiculous, narcissistic idea of their own worth and are no better than anybody else. I pity them myself.

  • rate this
    +6

    Comment number 100.

    So CEO of FTSE 100 company must be pushed to think as fare as 5 Yeras - that sais it all about UK economics.
    I would say as an CEO you should work on 10 year outlook! at least.
    The difference you see in a powerfull German economy and a boom and bust joke in the UK.

  • rate this
    +9

    Comment number 99.

    Would these be the same talented individuals who trashed our Banks and exported most of our decent industrial jobs.

    Of course we have to pay them big otherwise they will take their talents elsewhere and smash up some other country`s economy.

  • rate this
    -1

    Comment number 98.

    #93: you're the troll for putting the obnoxious poster in question back in the limelight when he'd fallen off Page 1 .............

  • rate this
    +6

    Comment number 97.

    Am I the only one to think "so what?".3 years,5 years;it's not exactly earth-shattering.
    Instead of Robert suggesting it may lead to more prudent management, could we not equally argue it could lead to recklessness for even longer periods than now?
    Wonder what brilliant Perm.Secretaies & other top Civil Servants think : when they give up the riches for public service?
    BTW,keep Linda off Blogs!

  • rate this
    +3

    Comment number 96.

    Cr@p and Cream float to the top... not so much of the latter nowadays.

  • rate this
    -6

    Comment number 95.

    Hmmm.... http://m.investmentweek.co.uk/investment-week/news/2295987/fidelity-to-launch-global-enhanced-income-fund-for-roberts

    Fidelity Worldwide Investment is to expand its equity income franchise with the launch of a Global Enhanced Income fund for manager Dan Roberts using covered call strategy already run on the group’s UK Enhanced Income fund to generate additional yield.

    Naughty Robert

  • rate this
    -2

    Comment number 94.

    How come one company can dictate to a whole market, it is a bit like the beeb deciding what its customers can comment on, when, how often, using so many characters, yes OK i am starting to get the drift.

  • rate this
    +3

    Comment number 93.

    @Heisenberg 65 & 51

    Why oh why do people respond to such sad cases.
    Can they not see the big sign....DO NOT FEED THE TROLLS!

  • rate this
    -4

    Comment number 92.

    Re my comment at 85
    Oops..have marked down.
    Someone thinks I do not need to know who the good guys are.Or god forbid they think I do not need to know wjho the bad guys are.
    I care.Do you?

  • rate this
    +9

    Comment number 91.

    I have written to Fidelity Worldwide, asking publication of tables showing their 400 big companies contributions as UK Corporation Tax. I and many like minded patriots can then boycott poor performers who do not contribute to our nation and society and report such organisations and managements to HMRC as potential tax dodgies.

    Avoiding taxes causes inflation to those who do pay up.

  • rate this
    +4

    Comment number 90.

    5 years? come on Robert.. in the senseless merry-go-round of mergers and acquisitions it will mean that many will get their mitts on them well before then at the time they are being bought out at a premium..

  • rate this
    +12

    Comment number 89.

    Germany is the biggest, most stable, and credible economy in Europe. Having workers on Management boards has had a very positive effect on the way companies are run and the remuneration policies for all staff. There is a much more sensible correlation between top and bottom earners. The UK can learn a lot from Germany.

  • rate this
    +5

    Comment number 88.

    65. You ''allowed'' them? Sounds to me like you need to be fired as you think you can restrict your workers from doing the job. This implies that you do restrain them to test your own ego from time to time. Workers work to pay the bills not because you ''allow them''.

  • rate this
    +6

    Comment number 87.

    86 important PS

    Nobody is worth more than 20 times the least of our brethren(/comrades!).

    We must get a National Maximum Income introduced via the tax system.

  • rate this
    +5

    Comment number 86.

    Robert,

    Please investigate the 'COUP d'ETAT' that took place at the end of 2008.

    This gave bankers complete control and the right to all benefits from the British State.

    Mervyn King announced the coup with his 'too big to fail speech'.

    The whole country is now being run for the bankers and not the people.

    We must seize back the country and break up the banks (and the bosses you write about)!

 

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