In the business world it is accepted that if you don’t pay a
bonus, you won’t get quality individuals (i.e. men – but that’s another story)
to undertake such important roles. Hester’s salary for example is £1.2m; that
obviously doesn’t guarantee quality leadership. I thought it would. Chris
Roebuck of the London Business School said RBS had no choice, if they didn’t
award this level of bonus, Hester could ‘walk 50 yards across the street’ and
get another job somewhere else. He has this week discussed his 'deeply
depressing moments ' during the last three years. Hester turned down the bonus
and even considered leaving RBS. Surely not.
If shareholder wealth maximisation is the primary objective,
Stephen Hester has done his job and deserves his bonus, RBS is now making
money. Under the principles of Corporate Governance, incapable managers are
removed by capable ones. Based on his results, Hester can't be described as
'incapable'. Diamond on the other hand has given up his 2013 profit target in
favour of an 'in time' time scale, (which is no time scale) but will he be
awarded a bonus? Or more to the point, should he be awarded a bonus? Depends
what he was asked to do and if it was dependant on achieving 6.8% then no, he
shouldn't. He probably will, although it may be 25, 32 or 45% down.
In 2002 Charles Handy remarked that there is more to a
business than making a profit, the level of profit simply allows the business
to 'do something more or better' and the 'something' becomes the real
justification for the business.
Handy talked about the workforce being a community who all benefit
from the company doing well. He said that we should measure success in terms of
outcomes for others as well as ourselves. The outcome for Hester is good,
potentially, and for the shareholders too, RBS has made a profit under his
leadership. Is that the kind of community Handy meant. Sounds ok to me.
On Friday when Barclays announced that they had missed their 2011
profit expectations, Diamond took the focus to 'Citizenship'. No, they probably
weren't going to make their 2013 target but 'look at the other things we've
achieved' (I think was the general message) which would have been admirable had
they not included paying tax in one of their contributions to society. We all
pay tax, it's an obligation not a thing simply to 'help economies progress and
grow'.
Until this week, my opinion on share prices or 'the market' as it
is known, was that it (trading) was little more than gambling, some you win,
some you lose, certainly based on luck or something beyond my control going on
the in the Global economy. Now I've discovered that the market is actually
efficient so is there any point in trying to beat it? The standard finance
theory is that the market is efficient so don't try to beat it, the behavioural
financiers (or professionals) oppose this theory since it makes what they do
redundant. Rational/irrational? Normal/abnormal? Who's right and how would you
test? (Statman 1999)
Barclays share price closed yesterday at 234.05p, the day before
the news about the profits, it has closed at 233.1p. No over or under reaction
there then.
At the World Economic Forum in Davos a few weeks ago the issue of
inequality was repeatedly raised. The gap between the 'haves' and the 'have
nots' appears to be growing. Is it? Who knows? The constant reminder from the
media about higher costs and lower wages only serves to reinforce a picture of
bleakness where even people who achieve what they're employed to achieve
shouldn't be recognised in the (business) appropriate manner.
Only time will tell whether Hester stays with RBS to complete his
task and ensure the bank is sold at a good price and the UK taxpayers get their
dosh back, or indeed whether Barclays hits its 2013 targets and continues to
contribute to society by paying its tax.
Do you feel that Hester was right to turn down his bonus? If he reached his set targets then why shouldn't he have received it? I feel that Hester was a scapegoat in this whole situation and that the bonus should never have been made so high.
ReplyDeleteMaybe the salary structures that figures such as Hester receive should be re-evaluated. If the general public could deem them as more appropriate in the first place then this story would have been of no interest to people.
Difficult isn't it, all depends on your perspective I guess. In Hester's position I definitely think he should have been given the bonus, and he had every right to accept it. He earned it. However, since the bankers were blamed for the global economic crisis, everyone has an opinion on it and it comes down to the perspectives of others, not involved in RBS at all and that can't be right. The world's gone a bit mad. Every man and his dog has an opinion on things of which they know nothing. Can you imagine taking redundancy money from a miner leaving the north east coal mines a few years ago. Wouldn't be popular because he's the 'man in the street' and it looks as though he deserves it, (relatively speaking there were some large payouts). Hester on the other hand is not 'one of us' he's middle class and overpaid (or so some believe).
ReplyDeleteDoesn't sit well with me. I wonder what the long term repercussions will be?? Think prohibition in America, did that stop alcohol being consumed? No, it allowed underground dealings which were uncontrolled, dangerous and unfair and the danger here is that if it isn't thought of as acceptable to pay bonuses'up front', either we won't get the talented individuals to take on such hot potatoes, or it'll be done in an underhand way.
I don't think re-evaluating the pay of top execs will help much either. It will cost millions and achieve nothing because of the proportion of people who earn less than these individuals. And that's most of us. Top pay will always be seen as too much to the masses. Hope I get to find out first hand!
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