Wednesday 9 April 2008

Are we still too generous to failures?

The average age of a FTSE-100 chief executive is currently 52, and he or she (but almost invariably he) can expect to remain in place for less than five years. He is paid an annual salary that would take the average worker 58 years to earn. And since that obviously isn’t enough to get him out of bed in the mornings, he is also incentivised with generous share options and an enormous pension fund.

Now I’m not an egalitarian: anything but. I am aware that the market for top management talent is truly international, and that companies must pay the global rate for the job. I also appreciate that a successful CEO can add billions to shareholder value, and naturally feels entitled to participate in those gains.

I’ve tried running a business myself, albeit a small one that got even smaller on my watch, and know that it is by no means as easy as it may look.

The personal gains that a CEO can make during his short stint at the top are beyond the wildest dreams of avarice for 99.999% of the population, yet they are modest compared with those achieved by a top entrepreneur. That reflects a completely different risk: reward ratio. Most successful entrepreneurs I know failed before they made it, usually more than once, and if they did not actually lose their shirts as well as their jobs, they sacrificed pretty much everything else.

Like political lives, most CEO tenures end in failure. That’s the way of the world; business is cyclical, and the profit warning that led the non-execs to hand him the pearl-handled revolver may genuinely have been due to circumstances beyond his control. The compensation package he receives under the terms of his contract will also seem paltry compared with what he has been used to.

But, in the case of the most spectacular corporate collapses, it still looks like a massive amount to those small shareholders who have lost everything, and the employees who face losing their jobs and receiving only statutory minimum redundancy pay.

Despite everything that has been done to curb management excesses under the various corporate governance codes of recent years, can we really claim that we have got the balance right?

Keith Hann is a PR consultant who can run a bath, but little else.

Originally published in The Journal, Newcastle upon Tyne.

No comments: