The Blog

I'll Set Your Pay And You Set Mine

There is an incentive that you have for going to work and doing a good job while you are there. Your wage is what gets you up in the morning and propels you to work and makes you put in the hours, or rather it is the thought of losing it that makes you do all that.

When you get to the exalted position of upper management, however, and you start to earn the big money, it is not the wage that motivates you at all. When you ascend to the heights of the boardroom, you apparently need to be motivated MUCH more than by a mere wage, and that is where bonuses come in.

We know that the wage alone is not enough to make upper management put in a hard day's work because whenever anyone like a shareholder criticises the amount of management bonuses, the answer is always the same - it is that they need to be incentivised.

BP faced a shareholder rebellion over executive pay in April, when nearly 60 per cent of shareholders rejected the oil giant's remuneration report, which awarded boss Bob Dudley £13.8million.

Recently, more than a third of shareholders in advertising giant WPP refused to back boss Martin Sorrell's £70million pay deal as it was accused of a 'history of excessive pay.'

There was a survey for consumer group Which? that looked into the trains service that millions of people have to take to get to work and it found that the company Go Ahead's trains were the worst value for money. Its trains were also voted the least clean and least punctual and the most difficult on which to get a seat.

Three Go-Ahead franchises, Govia Thameslink Railway, Southeastern and Great Northern, were voted the UK's worst.

David Brown is the chief executive of Go-Ahead and so you would expect that his remuneration would be rock bottom and would have stayed that way for years because of his company's reputation and performance

Of course, you would be wrong. He was awarded more than a 100% pay rise.

In 2013 he made the not inconsiderable sum of £924,000, last year he got £2.163m for running the worst railway company in the country, according the the poor sods who have to travel on it.

The housebuilder Persimmon was criticised this week by one of the group's investors that said their executive pay plan was a bit steep when they saw that senior managers were going to share a £600million bonus pot.

The chief executive of Persimmon will pocket around £100million all for himself. When this was questioned by the shareholders - the people that actually own the company - the housebuilder said that the sum was "designed to drive performance".

You would have to be the laziest person that has ever existed if you needed a £100m bonus on top of your huge salary to drive your performance.

Apart from the banking racket, the Persimmon house builder's executive pay plan is one of the largest ever at a FTSE 100 company.

Persimmon said: "This is a long-term plan which is designed to incentivise the management to deliver the capital return, grow the business and increase the share price".

It is a measure of how utterly divorced these people are from reality and any measure of justification that they could say out loud that their highest employee needs a bonus of £100m, on top of his salary, to do a good job.

Most people's incentive for doing a good job is that they will be fired if they don't, but when you get to management level, you can be a complete cackhanded buffoon and you still won't get fired. At worst, you will get to spend more time at home counting the pile of cash they gave you for your golden goodbye.

It's not like the housing sector hasn't had help. Interest rates have been rock-bottom for ages and there are various government schemes aimed at encouraging construction because of the shortage of houses - so their performance has been given a hand by circumstance and by the government, using your money.

As you can imagine, because they are doing very well, the company wants to reward all those people who have made it possible by humping bricks and laying pipes and wiring homes and putting on roofs and digging up earth know...the ones that have actually got their hands dirty and broken a sweat to make it happen.

Just kidding, only a few men with white collars and clean finger nails get bonuses. Construction companies pay their brickies about £8 and hour and labourers get around thirteen grand a year. The workers obviously do not need motivating like management does.

Those in the top jobs pay themselves these amounts because they can.

When they are lucky enough to get to that level, and it is mostly luck, they set their own pay, with the connivance of their peers on remuneration committees which set pay high because it sets a precedent that will be cited when those same people on the remuneration committees negotiate their own pay awards.

It is a tight little round of mutual pleasure giving. An executive circle jerk, if you will.

Now gentlemen, please wash your hands.

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