BBC BLOGS - Peston's Picks
« Previous | Main | Next »

Executive gravy train stalls

Robert Peston | 11:23 UK time, Wednesday, 20 May 2009

Companies don't come much bigger, grander or more putatively proper than Royal Dutch Shell.

So it is profoundly shocking that Shell's shareholders should yesterday have voted against the substantial remuneration paid to its directors.

Under governance rules, the vote is advisory only: it is non-binding. But it is a public-relations disaster for Shell.

It is a warning to every company that shareholders will not tolerate discretionary pay awards when performance targets are flunked.

What angered Shell's owners is that the oil giant gave top executives substantial numbers of shares under a long-term incentive plan plus bonus shares relating to another plan, even though the company missed an important target for the period 2006-8.

This discretionary award is worth £1.2m to the chief executive, Jeroen van der Veer, on top of pay and other bonuses worth around £4.5m.

Nice work.

Now, here are two striking facts.

First: back in 2005, Shell explicitly told shareholders that its remuneration committee reserved the right to make discretionary awards as and when the company only narrowly missed targets. If there was a stormy campaign of protest in response, I certainly didn't notice.

And perhaps more importantly: this is the second successive year that Shell has made this kind of discretionary award after flunking the target. However, 12 months ago, shareholders gave their overwhelming approval to the company's remuneration practices.

So what's changed in 12 months?

Surely, you don't need telling.

Global recession is leading to job losses and pay cuts for millions and millions of people.

Against that background, the feather-bedding of top executives who don't hit their targets is widely seen as intolerable.

And what's slightly odd is that the non-executives on Shell's remuneration committee, the grandees who made the discretionary award to Shell's top execs, seem to have been unaware of the public mood.

Some would argue that they may be dangerously out of touch. Although to be fair to them, they are no more out of touch than our own MPs, who initially showed so little sensitivity to the outrage sparked by the way they've been systematically milking their allowances.

The importance of the shareholder rebellion at Shell is that it is an extreme manifestation of a clear trend, which is that professional investment managers - who look after our savings - are intent on making their feelings known when they see executives rewarded for performance they see as inadequate.

So, for example, sizeable minorities of shareholders recently voted against the compensation practices at BP, Pearson and Xstrata.

And at Royal Bank of Scotland, a record-breaking 80% of shareholders voted against what it paid its top team - which was really just a scream of frustration about the doubling of the pension entitlement for Sir Fred Goodwin, the former chief executive widely blamed for hobbling the bank.

You might mutter about stable doors and horses - and you might note that these professional investment managers were hopeless at reining in corporate excess during the bubble years.

That said, the Shell vote is today reverberating in the boardroom of every big company. What the directors of substantial businesses can hear and feel is a great clanking and juddering as the gravy train of executive remuneration hits the buffers.

Comments

Page 1 of 2

  • Comment number 1.

    Those bonuses dont look as big as the expenses your favourite MPs are getting. Do they Robert?

  • Comment number 2.

    Robert
    Everyone has the choice to get into one of those roles. If you dont want to give the commitment to get there don't moan about what they get paid!!

  • Comment number 3.

    With pay and other bonuses worth around £4.5m Jeroen van der Veer is not exactly hard done by. Personally I think that with pay at that level I'd work my butt off for a couple of years, squirrel most of the money away and then retire comfortably.

  • Comment number 4.

    Wasn't David Greer at Royal Dutch Shell, with his infamous 'Lead me, follow me, or get out of my way' memo?

    https://moneyistheway.blogspot.com/2008/06/david-greer-regal-petroleum.html

    I would follow these characters anywhere.

  • Comment number 5.

    These same pension fund managers who seem to have woken up are also the reason that executive boards have felt that they could ride the gravy trains in the past because the fund managers, who collectively hold massive proportions of the shares were always reluctant to rock the boat and almost always voted for the status quo at AGMs or EGMs. i.e. always backed the board. Before the advent of pension fund managers real shareholders would actually think about what they were or were not voting for.

  • Comment number 6.

    Even Mutuals (Nationwide) are paying their execs for meeting targets about the customer experience which is more of a reflection on people diving out of banks to safeguard their money (until the recent downgarding of their management). They lost a huge wodge of money in bad debts at the US bank that went down, and still get paid! Looks like anyone could be a banker, as failing at this seems pretty easy. Money gets more money and not having any costs a lot. Ever was it thus. Part 2 of 1066 programme last night finished on the note that the descendents of the Normans who took over then still control 25% of English land. Haven't had our revolution yet have we?

  • Comment number 7.

    THE GRAVY TRAIN - I don't suppose the 'professional' investment managers - who were hopeless as you quite rightly state - were on the gravy train during the bubble years!
    Can we find out how many of them have lined their pockets at other people's expense.

  • Comment number 8.

    'let them eat cake' and hopefully some of those saying this will meet a similar fate to the first lady to use this phrase.

  • Comment number 9.

    # 2 Sadly it is about neither commitment or qualifications at this level, it is about connections, ability to play political games and grease the appropriate palms (even if it is metaphorically).

  • Comment number 10.

    As W Edwards Demming, the management guru whose work help Japan become the industrial giant of the 1970s and 1980s, said performance related pay does not work. It is only when Japan started to import the Anglo Saxon financially orientated style that it stated to stagnate.

    Pay people honestly and openly. Look what the bonus culture has done, a financial mess.

  • Comment number 11.

    #9 I do not believe to be the case. This reason is always given by people who are not prepared to do what it takes to get to that level. If people take that choice, fine, but dont make excuses for not been prepared to make it happen for yourself.

  • Comment number 12.

    Heartening post Robert, and "well done" to the Shell shareholders.
    And now the banking establishment thinks it still merits "AUTOMATIC IMMENSE WEALTH" despite owing the British public about 500 billion pounds.
    There seems something repulsive and almost fraudulent about that.
    The shareholders at Shell are mirroring the publics' view that some sort of "feudal" agenda is going on.

  • Comment number 13.

    HALLELUJAH!

    Some (corporate) shareholders are starting to take their shareholding responsibilities seriously.

    Perhaps, just perhaps, there is hope for the human race yet!

  • Comment number 14.

    It's not just straightforward companies with this issue. The Uk-listed Alliance Trust has an eye-watering incentive scheme and that's just for running a boring old investment trust. Last year the now CEO got a bonus above £1M ie about the same as the CE of Shell !

  • Comment number 15.

    #10. At 12:24pm on 20 May 2009, NE555A wrote:

    "As W Edwards Demming, the management guru whose work help Japan become the industrial giant of the 1970s and 1980s, said performance related pay does not work".

    I absolutely agree.

    I can find no empirical evidence that paying such executives such vast money and bonus rewards actually produces better, more functional and more robust companies, or better service delivery.

    Usually it seems to result in mediocre/average managers being over-promoted.

  • Comment number 16.

    windchrisleeds

    If you want to get to that level it helps to be slim, fairly tall, fair-skinned, articulate, manipulative and well connected. Please stop pretending that commitment produces the right results; as one board member of a publicly quoted company once said to me `it is about playing the game'. I should then go on to say he lost the next three matches.

  • Comment number 17.

    Performance related pay works. It incentives people to work harder, the theory being that this will increase profits.

    Where there is further success this should be rewarded. Removing targets and incentives would be a fundamental error-why wouldn't everyone just go to work and sit at their desk? For the greater good?? Please, lets be realistic.

    The problem with performance related pay/incentives is twofold.

    1. 'Performance' - how to be measured? And by who? Over how long? Clear long term parameters need to be set. However, where large profits are created, large rewards should also be considered, balanced against sustainability and long term review/certainty of the assessment that the performance is good.

    2. Incentives, and greed. Where there is an incentive we are all i'm afraid pre-programmed to seek to exploit the system. We look to work the numbers and inflate the numbers-so we reap the rewards through our incentive. This has created the banking crisis to a significant extent, with bankers creating products with little material value but which have the effect of increasing their numbers and creating paper profit.

    In this context the Shell board are outstandingly detached from reality. There would probably have been a furore at the bonus payments even had the performance element been achieved. That the performance element was failed and the incentive is still being paid is just ludicrous, lacking even in common sense.

    But lets not confuse Shell's unjustifiable decision with the importance and relevance of incentive based, performance related benefits...they are not one and the same, they just need to be managed and assessed properly.

  • Comment number 18.

    As a principle bonuses are 'less dangerous' I think for people outside of the financial services industry, especially if they are tied to real outputs like ' barrels of oil sold' or infrastructure build rather than intangible 'cyber profits' as I would term them.

    Banks make 'cyber profits' by inventing ever more wierd and wonderful 'financial instruments' for their mates in ratings agencies to call AAA when they are nothing of the sort, make an unproductive load of cyber money out of it leaving someone else to pick up the tab when the nice shiny tin is opened to reveal a load of slimy worms. Dont they call that fraud outside of financial services? Cutting bonuses should be the least of their worries, if it was anything other than financial services they would be in jail.

    One annual bonus payment for a city high flyer would be more than enough for a normal person to live extremely well for the rest of thier lives. One year of dodgy dealing rewards them with enough money to retire comfortably for life in a tax haven somewhere with (seemingly) no danger of being brought to book for selling a worm in a nice shiny tin to (unltimately) poor sods like me who earn a normal living in the real world providing real stuff of real use.

    How on earth do ratings agencies still function? Do they have no corporate responsibility at all? If they do not why should we ever believe them? If they do how are they still trading?

    Its just so unfair, yet the media are hapilly moving on to other news hence allowing them to slip out of public scrutiny and off the hook to regroup rearm and repeat.

    It is truely a sickening situation for those of us unfortunate enough to understand it (no thanks to the media).

    Jericoa

  • Comment number 19.

    The Trojan whores have long since shut their stable doors from the interference of outsiders who could only wish to take them to the glue factory to be cut and pasted.

    And all with the conivance of pollytitians who wish to join their "box carriage" in the sealed gravy train ,that will decouple along a side track, before it reaches paloooooookahville with the hired and muddled AAA's holease earning to be tiered .

  • Comment number 20.

    No. 3 - "Personally I think that with pay at that level I'd work my butt off for a couple of years"

    With the average UK salary being £20K p.a., how obscene does 4.5 MILLION a year look? That's 225 times. Does he work 225 times harder than someone on 20K?

    Same goes for the wedge Goodwin has retired on. Most people will never see the amount he's getting as an annual pension in their entire lifetime.

    Maybe when MPs expenses have disappeared off the radar, people can start getting angry about this sort of ostentatious remuneration.

  • Comment number 21.

    Robert

    I think the clanging and clattering is more abour Marley's ghost than a gravy train. As we all know company shares can go down as well as up and shareholders have had too much of the down lately.

    I have already entered my view that performance related pay does not work on your blog and see no need to repeat it.

    I am delighted to find that the rest of the world is starting to catch up with my thinking. However, I have been around long enough to know that the gravy train will still run and run despite everything.

    The focus should always be on added value as profits can be achieved just as easily from slash and burn. The shareholders need to be clear as to how the profits are generated.

  • Comment number 22.

    How can pension fund managers be so short sighted? The aggregate profits at Shell are closely correlated to the oil price.

    Oil prices are rising, back around $60/bbl - It has not taken Shell management long to maked a point and to prove their worth by making oil prices rise.

    If these people are not paid properly, and they remain subject to media innuendo then they may well make oil prices go down. Where will that leave everyone?

  • Comment number 23.

    If shareholders do not approve they can sell their shares or perhaps even vote him out.

    What can we do about Mr Brown? - He is going to survive again isn't he? His only aim is to get to tomorrow lunchtime and the Recess and then hopes all the expenses rows calm down.

    It is utterly pathetic that because our MPS cannot keep their hands out of the cookie jar they ask for an independent commission to monitor the payments. If we can't trust them to make proper expense claims how can we trust them to govern our country.

    General Election now!

  • Comment number 24.

    #6 grumpynotoldman: Can you repost what you said in English please?

    All I can say is that as the average dividend for shares in any company has collapsed, no wonder shareholders are angry at any form of executive remuneration.

  • Comment number 25.

    It seems to me that targets are just a way for the board room to get another slice of the cake - easily.

    If targets were set at realistic levels i.e achievable; they would merely be measuring the ability to do what is expected to recieve basic salary.

    Exceptional performance should be rewarded through increased dividends on the shares that directors/senior managers purchase at very favourable terms or are awarded as part of the basic renumertaion scheme.

    Only truely exceptional performance should be rewarded and by that I mean exceding your "target" and beating the sector average by a significant margin (25% or more?). Bonuses need to reflect oustanding performance, not just acceptable performance.

  • Comment number 26.

    It's not really about targets though is it? it's about quite ordinary people for whatever reason being paid obscene amounts of money and they are quite willing to accept it without a pang of conscience.

    There would appear to be complete moral bankrupcy at the higher echelons.

    How can anyone feel able to accept such huge amounts of wonga (as Robert puts it so often) when quite a bit of the world is literally starving and scrabbling around on rubbish tips for scraps?

  • Comment number 27.

    And how is it that these companies have been run for decades by people that were simply "well paid", but in the last 5 years can only be run by people who earn lottery jackpots every year.
    We are all being had.

  • Comment number 28.

    #16
    So every well paid senior executive looks like that! I think not. I suggest you stop pretending that commitment does not count because I know it has got me where I want to be and many others too. Maybe you just dont have the will or want to get there!!

  • Comment number 29.

    Well, we all know how systemic corruption disrupts economies and the lives of their citizens.

    "Graft" has two meanings: hard work for reliable reward or back-handers for instant profit.

    If the credit crunch and ensuing recession around the world will clean up the stronger economies by exposing this growing corruption, it may be worth it.

    I ask: what about the weaker economies and their citizens? Do their leaders continue to accept aid only for it to be channelled away from their citizens and into private holdings?

    I'm not sure that the Shell remuneration packages are excessive as far as I know.

    I do not smell whiffs of corruption there, yet.

    N.




  • Comment number 30.

    ref 23

    Blimey! Big Gordy has got everyone fired up. Even Salinger has returned to the mainstream.

    What about that next book? Possibly a biography of Hazel Blears, snout in the trough, entitled "Catch 'er in the Sty"?

  • Comment number 31.

    big executive bonuses mp's expenses bankers greed etc etc, why do they continue to think that the majority will continue to allow such perversion of the system.
    greed for the sake of your own pocket is flawed and those who continue to play the game will get their fingers burnt as details reveal.
    and saying sorry just wont cut the ice.
    a shake up in all sectors is required now before its too late.

  • Comment number 32.

    Robert
    I thoroughly object to your snied remarks about MPs being as out of touch at the plutocrat execs at 'top' companies (and naturally dismiss Java's inaccurate comment). The latter are completely cut off in terms of the facts of their lives and lifestyles: this is simply not the case with MPs. Naive and foolish they may be in many cases, venal in the case of a very few: but the financial rewards for work done by the two groups are not remotely comparable. How many MPs can look at an annual gathering in of 1.2m quid from all sources of income, never mind 4.5?
    MPs have been snaffling crumbs; the plutes have been openly purloining outsized loaves.

    RRR

  • Comment number 33.

    Interesting to see how vocal some of these high paid types are about any rise in the national minimum wage, they might find out one day that poverty gets you nowhere, let them choke on their cake.

  • Comment number 34.

    Apples and pears to compare oil companies and banks although both have degrees of systemic importance. I think the Shell board take remunerations of £30m plus for administering £450bn turnover generating profits of ? + £20bn and corporation taxes - compared, say, with BBC whose Trust and Executives take ? £4m plus for administering a £4bn budget, £3.5bn odd being public money generating not so much tax. Pound for pound, the Shell board look like good value. There again, apples and pears.

  • Comment number 35.

    3. At 11:49am on 20 May 2009, Wee-Scamp wrote:
    Personally I think that with pay at that level I'd work my butt off for a couple of years, squirrel most of the money away and then retire comfortably.

    ----------------------------------------------------

    Good idea but that is exactly the reason you'd never get that job.

  • Comment number 36.

    28 windchrisleeds

    I am delighted you didn't get where you are today without showing commitment. I would have thought that some productivity would have been more useful.

    You are quite right I have no interest in the greasy pole as the I find the satisfaction of an honest days work is far more alluring.

  • Comment number 37.

    36. At 1:55pm on 20 May 2009, stanilic wrote:


    So it's only an honest day's work if you're not well-paid?

    Good thinking Karl Marx.

  • Comment number 38.

    Unfortunately Shell do not take any notice of either staff or public opinion. Its a bit like a VLCC (very large crude carrier) that has lots of momentum, takes a long time to change course and can cause great destruction if badly lead. Very pleased to see shareholders stopping the nonsense of a shell gravy train.

  • Comment number 39.

    Here's a point, very often the non-execs who nod these things through are current or recent-ex politicians. No wonder they had no idea. And of course, it was the hobnobbing of the big exec with politicians that led us to meltdown, n'est-ce-pas?

  • Comment number 40.

    Get on the train folks, fill your boots :-)

  • Comment number 41.

    "He who has the Gold makes the rules" - The owners of a company making decisions. I love the smell of capitalism in the morning.

    Compare this to Gordo's pathetic attempt to claw back Sir Fred's reward. Government has no business in business.

    #26 - It is not what you earn but what you do with it that counts. With great wealth comes great responsibility.

  • Comment number 42.

    #36

    If you earn good money you are not doing an honest days work! There is no point in even continuing the discussion if thats your view point.

  • Comment number 43.

    #27 stevewo - quite right, couldn't agree more.

  • Comment number 44.

    No doubt these worried execs are trembling back to their personal Aladin's cave. MP's may be fidling their exs these people accumulate wealth on a planetary scale and they clearly do not care that ethically they live on a different planet to the rest of us. Supervisory boards with outside public and TU interests is the only way to tackle the appalling unaccoutability.

    MP's may be guilty of trough jostling but these people have their own trough

  • Comment number 45.

    #17. At 1:00pm on 20 May 2009, pawns_or_players wrote:

    "Performance related pay works. It incentives people to work harder, the theory being that this will increase profits."

    It's a fascinating theory, but it has no evidence behind it.

    Many, many people in public service, teachers, nurses, social workers and all sorts, are highly motivated to deliver quality outcomes without it.

    There are also many really dedicated people in the private sector who don't get it.

    There is just no evidence that you improve companies, or organisations, by throwing lots of dosh at their senior executives.

    If anything, it's just as likely to distract from the core business and result in mediocre managers working in such a way to 'prove' they are incredibly indispensible and getting themselves over-promoted beyond their inherent abilities, experience and skill. That is rather than working to deliver the best corporate outcomes.

    There certainly are a range of ways to motivate a work force, but performance related pay schemes can do a lot more damage than good. One of the greatest problems is accurately defining the required outcomes.

    So, someone maximises profits at a bank because it pays him/her, by way of big bonus rewards, to do that. Then that same person screws up on risk management and due dilligence - because s/he was driven by the potential bonus rewards - and took his/her eyes off of the wider picture and causes the collapse of the bank and a national banking crisis.

    It's so easy to write performance related schemes that reward things you really could corporately do without.

    (Somehow, that above example sounds familiar ... can't think why!)

    But truly it's easy to 'incentivise' people to do seriously damaging stuff like hack the workforce to pieces, asset-strip, etc., etc.

    Those individuals may be laughing all the way to the bank, but the rest of the company may well not be and, in fact, the owners / shareholders may well lose out too.

  • Comment number 46.

    #37. At 2:01pm on 20 May 2009, VinChainSaw wrote:

    "So it's only an honest day's work if you're not well-paid?"

    Well, I think I would go along with the idea that doing a day's work for an excessive reward is intrinsically dishonest. However comfortable an individual may feel in a "money for old rope" job, s/he usually knows it is a bit 'out of order' really.

    Unless perhaps s/he is so arrogant as to believe s/he is worth that excessive reward despite the fact s/he does not do very much really for it.

  • Comment number 47.

    37 VinChainSaw

    Never Karl Marx, but some of John Ball, Gerard Winstanley and Peter Kropotkin cling to the insides of my psyche.

    In reality I think everyone should be well-rewarded. It is the executive bit which gives me trouble. I prefer flat management structures as hierarchy will distort the business with its own priorities which are not necessarily the needs of the business.

    I am currently dealing with one such problem with a supplier who has to meet a bonus target by the end of the month. This does not accord with my needs so his concern for me as a customer has suddenly become uninteresting for him until 1 June. I am unimpressed.

  • Comment number 48.

    I'd like to see some alternatives to the recently overused expression 'eye-watering' sums of money.

    For most of us mere mortals, the figures bandied about these days are more 'pants-filling' or even 'migraine-inducing'.

  • Comment number 49.

    Excellent article, but I wish you'd put it up about three hours earlier! I've just had my final exam on Corporate Governance, and this was a goldmine!

  • Comment number 50.

    Head hunters have been extremely clever in creating a market for senior executives. It has very much been in their interest to drive up the salaries of these industrial 'wunderkind'. It is a totally false market. There are many people outside 'the market' who would perform equally as well at a fraction of the salary.

    To pay someone nearly £6 million for a year's work is frankly obscene.

  • Comment number 51.

    It is absolutely not the politics of envy to condemn greed. As many have said there is absolutely no possible justification for gigantic payments to anyone, be they a footballer, journalist, boxer or company director.

    The canard that we have to pay these sums or they will go overseas is also an absolute untruth. The fact is that there are huge numbers of people that can do most jobs from Prim Minister or industrial/banking power mad megalomaniac to road sweeper or care worker.

    These elite groups manipulate the media to maintain their position of unjustified privileged - We the masses are being taken for a very expensive ride. We have a minimum wage and we should have a maximum wage too! (And a wealth Tax!)

  • Comment number 52.

    Ahem.

    How many Company Executives can actually say that they have made any improvement to their Copmanies profits during the last year ?

    Very, very few Co Execs can say their business has succeeded during the last year.

    Mind you with so many big previously Gilt edged companies announcing losses and Dividend cuts, perhaps not cutting Dividends could be seen as an achievement.

    In fact with so many big name businesses desperate for cash (rights issues left right and centre) not doing a rights issue could be seen as success. No more Shareholder bailouts for bad management !

    Perhaps any bonuses should be in Share Options only (ie when the Owners make money so do the Executives, dreaming again I suppose!)

    And why would the Gov't bother selling their takes in RBS and Lloyds ?

    They and the Taxpayer would be better holding on, perhaps making an arrangement to sell back the Shares at issue price to the Bank, or the Banks could devote a percentage of their future Profits to purchasing their Shares back from the market, thus making their Shares more attractive in the longer term.

  • Comment number 53.

    Bob

    It is about time you looked into the local and county councils and compare now with 7/8 years ago for pay and expenses.
    As to Shell the shareholde4rs could all walk and then see what happens !!!

  • Comment number 54.

    42 windchrisleeds

    Why do you keep dragging money into the discussion. Is this your sole priority in life? I have never discussed money in this context.

    The way you keep drawing inferences into the conversation suggests to me that you are truly ideal executive material. Whether you add value to your business is another matter. This is my point: status makes for nothing.

  • Comment number 55.

    Year on year, decade on decade people at the top of private business have awarded themselves and their mates salaries and bonuses far in excess of the increases in the wages and salaries of the vast majority. No wonder MPs and top civil servants thought it their right to join in.

    They got away with it because most people thought they were becoming better off. This feeling was illusory -people might get cheaper consumer goods, but housing costs were rising much faster than salaries. Now this illusion is shattered people are beginning to see how they have been ripped-off.

  • Comment number 56.

    Given the revelations that keep coming to light about the obscene remuneration and reward packages that were given (and I use the word given in it's truest term) to top bankers and executives of other large organisations of large organisations, it is now evident that the terms and condtions being applied to these packages now need to become a whole lot more sophisticated and much better regulated than we have seen over the past couple of decades. And I am not just talking about reward for failure.

    This is especially true when it comes to performance realted bonus payments. Foe example it is wrong to reward any CEO of a large organistion who decides to cut back on levels of investment in areas such as Resarch and Devlopment and Capital Equipment (the seed corn for the future devlopment and well being of any well managed organisation) as a way of boosting short term profit figures.

    It is also wrong for senior executives who decide the way forward is cut back on staffing levels as a way of improving profits and then to award themselves a bigger bouns payment (percentage wise) than the staff lower down the organisation who are required to bear the brunt of any such decions by the CEO.

  • Comment number 57.

    r.e 20. At 1:03pm on 20 May 2009, MarkofSOSH wrote:

    With the average UK salary being ?20K p.a., how obscene does 4.5 MILLION a year look? That's 225 times. Does he work 225 times harder than someone on 20K?


    But does this mean someone on 20k p/a works twice as hard as someone on 10k p/a? I do not begrudge anyone earning what they earn, even footballers, bankers and MPs, supply and demand will more often than not decide what is the correct salary... if you work hard for a certain career, then you will normally be rewarded... i have not worked hard enough hence i am still earning about the average salary....

    But as everyone knows, money is not the only motivator, job satisfaction comes through many means....

  • Comment number 58.

    If Duncan Bannatyne and other genuine entrepreneurs (rather than the shinning up greasy pole merchants) are to be believed, the cash element is "just a by-product".

    Trouble is all the press feed the wider public is a self-centred short term gain merchant (The Apprentice for eg)rather than professionalism, organic growth, and "would you do it if it was your money". This is true for private and public sectors. Chief Execs on £150,000-plus amazing.

    Is it the press, or is it really the case that the "talent" in the country is going to leave because of the 50% tax rate?

    Any role models out there?

  • Comment number 59.

    Here's a simple test.

    Get rid of Shell's chief exec for a year.

    Next get rid of 4.5 million pounds worth of Shell's lowest paid workers for a year. Or 5.7 million pounds worth if we include the discretionary award.

    Which scenario would do the least amount damage to Shell? If, as I suspect, it's the former then the chief exec is overpaid.

    The fact is that rewards in large companies are not based on performance or skill. They are based on the ability to get oneself promoted. The result is that the small number of people in control make decisions that will benefit them, not the company. If executive pay is reduced drastically then we'll simply end up with better run companies. If it also encourages a handful of sociopaths to flee the country in seach of a better wage then so much the better.

  • Comment number 60.

    windchrisleeds and others ....
    surely, to progress in any company you need a balance of attributes, including:
    Qualifications
    Ability (not necessarily the same thing)
    Financial acumen
    Political sensitivity (to different points of view)
    Ambition
    Ruthlessness
    Committment/dedication
    So someone who has a balance all of these will probably "progress" further than someone who is of far higher technical ability, but lacking in other attributes.

    I would suggest, from my experience, that far too much weight is given to political nous, ambition and ruthlessness in achieving the top jobs.

  • Comment number 61.

    These "captains of industry" are no better than our "honorable members of parliament".

    They both trouser other peoples rightful dues with no conscience, remorse or reasonable judgement of what is right and wrong.

    We've started to bring one lot down to earth. Now for the MPs.




  • Comment number 62.

    #50 perhaps somewhat like the estate agents creating the rising property market?

  • Comment number 63.

    Well the guys making the fortunes and those who sit on their renumeration boards are in the same place as our MPs.
    £8 000 for a telly? How much a year do you get for doing your national service on the dole these days? Try claiming for a £60 telly at the benefits office and see if they agree that you 'need' it! No? What about a plug then?
    Wonder if the share holders want a look at the expense claims of these execs...

    They do not live on the same planet as the rest of us

    So obviously it took them by surprise that the people in this country have had enough. The fund managers are frightened they will lose support, by those who can move (ie elect a new pension and new fund manager).
    And the pension fund managers? No, they haven't had enough of the rich folk taking all the cream. They are out for revenge - how many of them are sitting there dreading the redundancy meeting with HR (if they've not already had it)?
    They aren't worried about our pensions, they are worried about their won earnings.
    Why haven't the pension fund managers began moving away from Shell? Petrochemicals is a dying industry....

  • Comment number 64.

    I still cannot work out having been in employment for 20 plus years and travelled the world why somebody in a company can take home in one year more than 100 times what I earn.

    In one year they earn at least twice as much as I can expect to earn in a lifetime.

    Nobody and I mean nobody in a public company is worth that much.

    The well versed line that these talented people will leave if they do not get this pay is also tripe. If they don't get this amount of pay there will always be somebody as capable of doing the job for less. Afterall in the UK there are over 60 million people and we all know there isn't a single one that is not expendable or replacable.

    The fact is that these people at the top are ultimately from the same public school club have invariably never done a hard days work in their lives and milk ANY system till its bone try. I have never met one of them that was singly interested in the people that worked for them or even knew properly how the company achieved what it did.

    All they have been intereted in is looking at the turnover (not profit) figures at the end of the year and sizing up how much of that they can take. All they are interested in for pretty much 12 hours of the day is the size of their portfolio. Disgusting and perhaps change is long overdue.

  • Comment number 65.

    Stanilic

  • Comment number 66.

    ''What the directors of substantial businesses can hear and feel is a great clanking and juddering as the gravy train of executive remuneration hits the buffers.''

    Whats happening with the gravy boat, is that the backup plan.

  • Comment number 67.

    #2, 11, 28, 42 windchrisleeds

    Part of the reason for the mess we are in is people doing "WHAT IT TAKES", irrespective of consequences, to get what they want!

    I'm guessing you didn't want the job at Shell!...... or were you not committed enough?

    There will be thousands of athletes training for the 100m at the next Olympics, you are saying that the one that wants it most will win, irrespective of talent, fitness, number of limbs, etc? Put the American book down please....... they turn decent folk into creeps at work......

  • Comment number 68.

    #50

    Total rubbish. You obviously have no knowledge of how headhunters work. 90% of all projects are done on an agreed fee and the salary has no effect on what the client is charged. Your comments indicates that companies have no control on what salaries they pay and just listen to head hunters.

  • Comment number 69.

    #44. watriler wrote:

    "...ethically they live on a different planet to the rest of us."

    I don't believe they do.

    If my employer were to offer me a million-pound bonus I would not turn it down. Similarly, if they were to allow me to claim 100 pounds per week for lunch or reclaim my entire mortgage payments then I would do that too (even if I were employed in the public sector).

    I'm quite certain that the vast majority of people, including those who contribute to this forum, would do exactly the same.

    I would not, however, make a fraudulent claim, which is a different matter entirely.

  • Comment number 70.

    #45 Sutara

    I take your point, and as to performance related pay the reality is that you would presumably say that high paid executives are already paid (higher) salaries for their performance and shouldn't be paid twice.

    In that sense the performance element is a secondary payment and I can certainly see that argument. Unfortunately I can't accept that a bonus element, target driven, doesn't push an individual even further, even as a simple matter of psychological incentive. The widespread use of such systems doesn't necessarily support their effectiveness but I think it does somewhat detract from the statement that 'there is no evidence for this whatsoever'.

    Supply and demand of 'skilled' workers also dictates that were such incentives not offered workers would leave.

    As to the remainder of what you say, thats where accurate assessment of performance becomes key. The system in banks recently failed spectacularly as assessment methods were skewed and failed in themselves- false profits were created and rewarded creating a viscious circle and further incentivising creating false profits and yet further rewards. Had the profits been real the complaints would have been far quieter, though I accept they will always exist as the individual benefits are so large.

    Separately it is not right to compare public workers such as teachers and bankers in this similar manner. We live in a commodity/consumerist society. A teacher is arguably incentivised in other ways, for example significantly greater holidays. That they are not incentivised enough, or anywhere near as much as bankers is a point that society must address. It is to an extent subjective as to what an incentive actually is, and what is of value to any particular person.

    Whilst completely unpalatable we must conclude that at present society values financially bankers more than teachers, else the pay scales would be reversed.

    If you look closely enough you will also see that teachers are rewarded based on performance. You will also see this with other public sector workers, for example G.P's and NHS Trusts based on the number of patients.

    It is interesting that you feel incentives are only payable to senior executives. This is far from the case, in fact you will find that incentives typically run throughout an organisation- with obviously headline telephone numbers (and frankly too high), the higher up the pyramid that you go. That doesn't mean Joe Plumber should receive a performance related bonus and the complaints aren't as loud when Waitrose share a few thousand pounds with all the workers-for example. People are hardly shouting 'what a flawed system' from the rooftops.

    The conclusion must be that the performance element should be accurately (arguably independently) assessed, and perhaps limited to a maximum cap, but not that the entire system is flawed, which would be an overreaction.

  • Comment number 71.

    I wonder if this is a glimmer of the shareholders waking up to discover just what a truly awful company this is.

  • Comment number 72.

    Robert,
    Never mind the executive gravy train, what about the BBC gravy train? While everywhere else there is deflation, the BBC get an increase in the TV tax for inflation. Where is the justification for that?
    Are you looking forward to having your enormous salary and expenses being divulged to the whole nation? I know I am. That's when the fun will start.

  • Comment number 73.

    I used to work for one of the goverment regulators (I got out ASAP as i hated it). at that time, in 2004/05, their annual report stated that the average staff salary was £56,000 excluding pension benefits (they had a non-contributory final salary scheme!!)

    I dread to think waht they pay as an average salary now, despite the credit crunch/ near failure of some banks. i doubt they are paying less as a result of failure

    if te number of public sector earners who get more than £100,000 pa is to be beleived then the figures are quite shocking

    PS -also worked for a high street bank (terrible)
    - also worked for an IFA firm (great service if you were a "high net worth" client else you got a second class service)

    - At 29 decided on a complete change. Now work for a charity.

  • Comment number 74.

    Yet another case of shareholder voting dismissed as irrelevant. Why cannot the AGM be used to approve or reject remuneration proposals as a condition of continuing in office? What is the purpose of AGMs if shareholders are ignored?
    In amateur sporting clubs up and down the land its officers are decided at each AGM. Those that fail are not re-elected. If, say, the secretary or treasurer in some cases has done poorly he/she is denied an honorarium.
    Why cannot the law be changed to effect such basic justice? No approval: no bonus.

  • Comment number 75.

    I was just moderated off Nick's political BBC Blog. Left high and dry for 3 hours without the right to respond. Is this a record?

    Brutal Transparency brings about sudden and fundamental change. This will happen at Director Level to Industry, Bankers and particuarly Politicians who think, really think that they can talk their way out of this one. The Public are watching words, then timely actions, demonstrating honesty. The Public today are no longer taking ANYONE's word as gospel or the truth, they want it to be demonstrated.

    Language is now so debased as a currency that the Public will ignore most statements of Leaders, waiting to see results, actions and timely decisions. Politicians will have a "dialogue with the Deaf."

  • Comment number 76.

    #71 artisticChrish - You need to wash your mouth out with soap for thinking such negative thoughts about a truly magnificent Anglo/Dutch collaboration.

    Shell are very active in Nigeria where they are universally respected and admired by the local population. If you tried to spread such sedition in Lagos you would most probably be deported.

  • Comment number 77.

    Public trust in those who run our country and its companys is so eroded that it will need massive changes if we are ever to trust any of them with our future or our cash.
    Tinkering with MP's expenses achieves nothing more than a new route to the trough, company directors own the trough and the rest of us are daft enough to ensure it never emptys.

  • Comment number 78.

    Robert,

    It seems perverse that, if directors don't meet their objectives, they still get paid massive bonuses. How does that make sense?

    It also seems perverse that your bolg is open for comments after 8 hours, while the political blog of Nick Robnson gets shut down after only a couple of hours.

    Is that because the BBC is happy for people to whitter away about general business issues about which they can do very little, but reluctant to allow people to vent fury about matters that affect all of us?

  • Comment number 79.

    My only dealing with Shell (that I know of) is to occasionally buy a tank of unleaded. Why do I think that Board room pay squeezes won't be making the pain of filling up any the less?

  • Comment number 80.

    #69
    You're probably right that most of us would indeed take what is offered, The problem is that the vast majority are never likely to find themselves in any where near that sort of negotiation.

    The problem is that those who consider themselves above the rest of us have formed nice neat clubs that are great at dolling out all the prizes to themselves.

    Of course they always put a pot aside for the rest of us to share and perhaps to make us feel we are getting our just share, the trouble is that we always end up with a small share and then have to give a good share of that back to the tax man.

  • Comment number 81.

    Oh, the pain of it all. Good public relations and with a number of investors and bankers currently unemployed he may find some keen resort proerties for sale at reduced prices and within reach even with his base salary. Suffering at the top is very different than suffering at the bottom. Guess he will just raise the price of petrol as a response.

  • Comment number 82.

    #66

    went to the beach today, bad news I am afraid, saw the boat at anchor just of the Isle of Wight.....sorry!

  • Comment number 83.

    1. True entrepreneurs are innovative leaders who create long-term value, prosperity and growth (e.g. Dyson) ... people we should nurture, support and reward ... (rather than hinder!)

    2. Traditional executives, normally from the finance community, are rarely innovative and tend to systematically destroy long-term value, prosperity and growth (e.g. by failing to innovative and applying simple cost cutting exercises) to obtain a large bonus for achieving short-term financial targets and goals* ... people we should challenge, stop and retrain ... (not reward with massive salaries, pensions, bonuses, and pay-offs for failure!) ...

    Rewarding failure has had it's day ... and clear self interest, poor moral values and greed have also had their day too ... the application of Poweromics** is being challenged in Government and it's going to be challenged in business too ...

    More people can see it now and it's not going to go away ... for instance I'm writing a Poweromics** blog with more examples to make sure it doesn't ... and to make sure its addressed once and for all ... and anyone who is doing the same will be linked from it too ...

    Poor management and Poweromics** have had their day - and with the help of the internet they will soon change forever, and for the better ...


    David Clift, a Future 500 Leader


    * 21st century leadership and management are completely different to traditional leadership and management, and focus on continuously improving the long-term value of an enterprise and the lives of people ... not creating fear and sacking them.

    ** Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed ... ... take a look at my previous BBC blog comments for instance.

  • Comment number 84.

    I have read a few entries here who protect the fat cats and the so-called incentives. I would agree if I believed that the people receiving this money were actually doing anything constructive to earn their rewards.

    I have never in my working life come across a senior manager or seen any of their decisions that trickle down as directives to be any more decisive than the average manager/ professional grade working in any of the operational departments.

    The difference in contribution versus actual rewards is totally disproportionate.

  • Comment number 85.

    #70 pawns_or_players

    I partly agree with some of what you say.

    It's interesting that you refer to bonus schemes where groups, or teams of workers, or even entire companies, are given a 'group' bonus reward.

    In my view, that sort of thing is actually more likely to create a genuine benefit to the company / organisation / service.

    But I still believe there is very little gain to paying allegedly highly capable chief executives and the like individual-based bonus rewards. Indeed, such schemes can backfire and create unplanned and undesired outcomes.

    In my view, shareholders are right to bring such arrangements into serious question.

    Also, I would just say that in my experience very few people in the public sector are, per se, on "performance related pay". Partly because voters (Council Tax payers and the like) would probably legally challenge such arrangements and if they didn't the Audit Commission probably would, or political rivals would call such arrangements into scrutiny. Paying such amounts out of the public purse is more contentious than a private company doing it.

    What the public sector does have, though, is wads and wads of "consultants" who flit in and out of various Councils and Trusts and are generally rarely worth the money they are paid. (Though I do know a few notable exceptions).

    Usually, they are employed to research something, or do a feasibility study, that comes up with an 'answer' to some issue that coincidentally just happens to be what best suits the local political convenience. That is, they are often actually employed to 'prove' that certain pre-made decisions are the best way forward.

    Finally, it needs to be recognised that some people in some types of professions, e.g. the care professions, education and some others, are not particularlly motivated / incentivised by direct rewards. Some would be much more motivated by increased investment in the service, or improved resources, or greater political commitment to sustaining an appropriate quality of service, particularly to people who may be vulnerable in some way.

  • Comment number 86.

    #48 crb_dorset

    As I'm in a rather generous mood this evening, I thought I would offer a few donations to your cause.

    How about:

    Toe-nail curling; vomit-inducing; elephantine; obscenely excessive ...

  • Comment number 87.

    Re 64 William 1965

    I agree with you when you say no person who heads up an organisation (as opposed to owning the business) should be able to earn more in one year than the avarage equally well educated working person can earn in a lifetime.

    It is nonsense to say for anyone to say that the sums of money our top bankers and captains of industry deserve to paid the vast sums of money they are now being paid.

    As recent events have shown moany of them managed to get to the top either through nepotisim or the old boy network and as a result we have ended up with far too many business clones suffering from high levels of inbred business idocy and insufficient entreprenurial flair.


    Re: 70 pawns or players

    I disagree with you when you say top bankers need to be sufficiently incentivised if they are to do the job we expect of them properly and what a good many who are earning considerably less could do equally well. There is nothing magic in being a top banker providing you have the right connections.

    I am totally in favour of someone with genuine entreprenurial flair and business accumin (such as James Dyson) earning vast riches for his ingenutiy, enterprise and genuine hard work over many many years.

    Neither am I against top bankers who put their own money at risk to earn over many years to earn themselves a vast fortune providing it is on the understanding that if the bank goes bust, in the way that we have seen banks go bust recently, then they lose everything they own.

    It is a fallacy to say that there are insufficient numbers of suitable people about who can run these sort of organisations. Most large enterprises have very good succession plans in place and if the boards of these companies believe they need to recruit someone exceptional to do the job they want doing then it is time for some of them to be put out to grass because as the saying goes "they have reached their level of incompetence"

  • Comment number 88.

    Only 60% of "shareholders" voted against despite the climate being so obviously against such greed. Presumably the 60% felt public pressure is mounting such that they had to do something whereas in the past they turned a blind eye.

    The key problem is that the fund maangers are not the real shareholders - who are mainly pension savers - and fund managers and others in the City are on the same gravy train of paying themselves huge amounts effectively from our savings as the PLC directors.

    Labour has not changed corporate governance to allow those whose money is actually invested in these companies the ability to vote on key issues such as Board appointments and remuneration.

    Why?-because they get huge political contributions from the City, PLC directors etc and former cabinet ministers and senior civil servants get lucrative appointments with PLC's and in the City.

    From expenses to corporate governance, corruption is rife, and we the ordinary public are the ones paying for it through taxes and raids on our pension savings.

  • Comment number 89.

    Today I attended an Investment conference, hosted by one of our biggest fund managers and this "Corporate Governance" issue generated similar anger from the attendees as the MPs expenses issue. Fund Managers were being encouraged to create a new forum to exercise shareholder power.I can't help but wonder that all this is symptomatic of increasing disatisfaction with the inequalities between the top and the middle/average earners in our society.

    Looks to me like we are gaining a new enthusiasm for democracy at all levels!

  • Comment number 90.

    At #44

    I think he has a perfectly valid point. The vast majority of us are not at Board level. For such people their rate of pay and reward is not indicated by some remuneration committee of business grandee's. Instead the ordinary employee's pay is set relative to the rate of inflation and what is left "in the pot" after the Bigwigs have helped themselves first. The employee has little or no say in the matter.

    Where pay is concerned it is the outcome of this system that makes the whole edifice of senior exec pay unethical. For the ordinary employee his salary barely keeps pace with inflation, yet the senior exec pay reviews have, until now, lead to massive annual above inflation increases in pay, (wait for it) even if performance has been BELOW par!

    It is not about whether I would reject a pay increase of massive proportions, of course I wouldn't, no one would, let's be honest. That is just not the point. It is about the system that deals with pay for one group of people versus a (much more generous) system applied to another group. The ONLY reason senior execs must have to have a different system is because the alternative (that the ordinary employees are on,) is just NOT GENEROUS enough. Clearly not nearly as generous as they tend to pontificate about after they have thrown us a proverbial bone at pay review time.

    This I believe is one of the reasons why the public are sick to death of the Establishment, having one set of rules for themselves, which keeps them nice and comfortable and protected. But another completely unfair set of rules for the vast majority of ordinary people. So, for example, not only do I insist that MP's clean up their expenses act. I want them to go much further and implement a system of pay reward that exactly mirrors that which ordinary people are just expected to accept! Why NOT?? The two tier system we have now is obviously immoral and that whole remuneration committee rubbish just needs chucking out! Whatever rules ordinary folk must live by, same should go for everyone from now on?

  • Comment number 91.

    Only 60%?

  • Comment number 92.

    Are we all waking up to the simple fact we have muppets running the world, and the nutters are running the asylum. Fred the shred walked away with 40 million quid for 8 years pen pushing and shredding the evidence, I could have done a better job for far less money and chances are RBS would have been in a far better place. I should point out that I do have an honours degree in Physics and so probably have a greater grasp on reality than he did. What were their qualifications again?, PHd in bullsh*t me thinks. Sorry state of affairs when a PHd in bullsh*t gets you a 16 million pound pension pot and a real qualification gets you shafted as a bank customer and a tax payer.

  • Comment number 93.

    At #3 Wee-Scamp wrote:
    "With pay and other bonuses worth around 4.5m Jeroen van der Veer is not exactly hard done by. Personally I think that with pay at that level I'd work my butt off for a couple of years, squirrel most of the money away and then retire comfortably."

    Ever thought of becoming an MP then???

  • Comment number 94.

    I am a great beliver in the carrot and stick appraoch, in fact I believe that it is the only system that works in private, political, business and financial worlds equally.

    I have no problem morally with vast earnings via salary or bonus or a combination of the two ( whether its a prostitute or a C.E.O, its what the market will bear).

    What I do not see anywhere in our daily, work, financial or political lives is the stick.

    From Hanging to flogging, Bread and Water to "correction chairs" it all seems to have been put aside for reasons that have never been remotely clear to me; as to what I'd do to the adults, I doubt whether the mods would permit.

  • Comment number 95.

    #94 apologies for the typo's, it is early in the morning, I will of course, self-flagellate.

  • Comment number 96.

    Well done RoyalDutch shareholders. In general I am in favour of remuneration packages commensurate with the job, however if they do not perform then there must be no additional handout. In this situation the mantra of 'We need to pay this amount to retain their skills otherwise they will go elsewhere' is usually wheeled out. If they are being so hard done to then they should follow that advice; go somewhere else. It is only right and fair that reality should reach them, sales people who miss their targets are being made redundant so why should the RoyalDutch Board be exempt?

  • Comment number 97.

    #67

    "Put the American book down" No thanks, I will keep reading the American and all others if they inspire me and others around me. They have helped me build a business that employs over 100 people doing an honest days work!!! Maybe you are just afraid to give it a go incase you dont make it happen!!!

  • Comment number 98.

    There is a big difference between shareholders and management....shareholders are taking a big risk, management are not.
    In fact, in recent years we have seen management stuffing their pockets to such an extent that they can walk away "loaded" at any time.
    This can lead to recklessness and apathy in management decisions.
    No one can complain when shareholders make a profit.....they can be wiped out overnight, and many have in recent times.
    Obscene executive pay is also a "slap in the face" to so many vital workers (nurses, soldiers, police officers etc) who survive on the minimum, and, in this case, it is even a "slap in the face" to Shells' own workers.
    If anyone asks me who is the most valuable....the "exec" or the guy who is risking his life on the rigs producing the stuff, they will get a very clear answer.
    Even those working in the refineries or the tanker drivers (who are driving around with a 50,000 gallon bomb behind them), to my mind, are worth just as much as any management.
    Pension funds, the biggest shareholders, have had a rough deal from executives in recent times, and it is about time they reacted against extreme executive pay.
    Bring executives back down to earth, or their ego and greed may take you down the same road as the banking executives did.

  • Comment number 99.

    The only way one gets on the gravy train is to 'shake hands' with the magic touch; be a member of the lodge.

  • Comment number 100.

    many thousands of people work with targets and even if they reach them, don't get any bonuses. they certainly shouldn't get anything if they don't.

 

Page 1 of 2

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.