Saturday 15 February 2014

Saturday, February 15, 2014 Posted by Jake 2 comments Labels: , , , , ,
Posted by Jake on Saturday, February 15, 2014 with 2 comments | Labels: , , , , ,

Does Great Pay come with Great Performance? In our earlier post we showed evidence from Verum Financial that the link between pay and performance doesn't actually exist. 

Which explains why ordinary executives get extraordinary salaries.But that in itself doesn't explain why salaries of the top 1% have been booming away while pay for the 90% has stagnated.

The Verum report also sheds light on this. Their analysis shows that pay for poor performance has a more insidious effect than simply giving extraordinary pay to ordinary people. The undeserved pay bonanza doesn't only annoy us ordinary Britons, it also annoys the real high performing executives who see the low performers getting rewarded for lowly performances.

The graph below shows that the variation in bonuses of high performing executives and the herd is much less than the variation in their performances. In plain terms the donkeys get paid not much less than the lions.

This has two inevitable consequences:
a) High performers demand more than their low performing fellow directors.
b) Low performers get more to keep up with their high performing fellow directors.

The Verum report comments:

"This would go some way to explaining the ‘ratcheting’ effect of executive director pay and why pay has tended not to fall when other metrics such as cash-based metrics and post-tax metrics including profit after tax or profit attributable to shareholders have shown sharp declines."

Company remuneration committees, who set the pay of the directors, collude on this. They don't want their dopier directors paid less as that would be an admission that they have dopey directors.

And they don't want to sack their dopier directors, because many of those on the remuneration committees are also pretty dopey and remember being told in school:

"judge not lest ye be judged".


  1. The Guardian reports pay hikes for Co-Op bosses

    "Under the proposals, Sutherland will be paid a base salary of £1.5m this year, plus a £1.5m retention payment. With pension contributions and other extras, such as compensation for buying him out of his previous contract, Sutherland will receive £3.66m this year. His predecessor, Peter Marks, received just over £1.3m last year.

    Richard Pennycook, the chief operating officer, will receive a £900,000 salary and a retention payment of £900,000. Six other executives will be paid salaries between £500,000 and £650,000 – and the same amount in retention. In the past, senior executives of the Co-op received between £200,000 and £400,000.

    It has also emerged that Rebecca Skitt, the Co-op's chief human resources officer, who joined in February 2013, left last month with a proposed pay-off totalling more than £2m."

    1. The report goes on to quote a Co-Op spokesman:
      ""The remuneration packages of our executives are in the middle of a range of comparable companies."


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