Executive bonuses – can they be justified?
Wednesday, 05 Feb, 2009
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Comment by Jeremy Skidmore (www.jeremyskidmore.com)
A certain news item has fuelled furious debate about the one subject Brits are usually embarrassed to talk about – no, not sex, money.
As I am rarely embarrassed, I’ll give my opinion on the subject. I’m talking, of course, about Thomas Cook chief executive Manny Fontenla-Novoa’s £5 million performance bonus and 34 per cent increase in salary to £850,000 last year.
That’s some pay packet and the timing of the news stories, which come as we receive daily reports of redundancies across all industries, is enough to make the company cringe. But, actually, that’s not Thomas Cook’s fault, because these payments are from last year and have come to light in the report and accounts where, legally, senior remunerations must be detailed.
Let’s be honest. It’s perfectly natural to look at such pay packets with a tinge of envy and ask whether chief executives ‘deserve’ such pay? But that’s too subjective a term. Do I deserve to be paid more as a writer than a nurse who saves people’s lives? Most would argue not – and I wouldn’t disagree – but the reality is often different.
You have to look at executive pay in cold business terms and although Manny’s bonus was huge, it makes sense for Thomas Cook because, unlike our friends in the banking sector, he has delivered the savings and profits required. In short, it is a reward for success, rather than for failure. I, for one, find that much easier to accept than former HBOS chief executive Andy Hornby’s albeit considerably smaller sum of £60,000 a month consultancy at the bank after seeing the value of my shares in HBOS destroyed.
Ah, people ask, but are top people just motivated by self interest? We all are, but as long as it’s compatible with the company’s interest, there isn’t a problem.
An old cynic once said to me that if you ever want to know the reasons for a merger, have a look at the incentive packages of the people at the top. There is no question that the TC/Airtours and TUI/First Choice deals both made sense but the people at the top were heavily incentivised to make sure cost savings and profits were delivered (I understand the figures at TUI were even more tempting).
This is perfectly normal. Would Manny have done a lesser job with a bonus of just a couple of million? Of course not, but that payment was signed off and good luck to him. I don’t know anyone that could look me in the eye and honestly say they would turn the money down or take a lesser payment in the circumstances. I certainly wouldn’t.
In discussing the issue with some industry colleagues, it was suggested that if Manny, or others in his position, didn’t receive so much they wouldn’t have had to make so many people redundant. It has been well documented that 2,800 positions have gone since Thomas Cook took over Airtours.
In crude mathematical terms they are right, but business doesn’t work like that. The redundancies would have been made anyway and it’s an unfair slight on Manny. Despite his success, he comes across as a decent bloke who wouldn’t have enjoyed getting rid of staff.
I wouldn’t for a moment imagine that Manny is losing any sleep, but if he is I’d say sweet dreams. He’s risen to the top, proved he can deliver and been handsomely rewarded. A shop floor worker may well reflect that life isn’t fair, and it isn’t, in the same way that you or I may be fit and healthy while someone else has a terrible illness. But that’s just the way it is.
Comfort yourself with the knowledge that money isn’t everything and comes a poor second when compared to your health or general well-being.
Now, I must get back to writing that best selling novel…
What’s your view on executive pay?
Jeremy Skidmore
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