Big City bonuses need explanation

The British have never been particularly good at talking sensibly and rationally about executive pay. The press whip up the baying crowd, and pour petrol on the flames of envy rather than promote reasoned debate on the issues. As a result, while Brits do not mind a footballer earning £1m, they object to a similar sum for a businessman. They can understand what makes Ronaldo worth the money, but not the corporate CEO.

Anthony Hilton
Anthony Hilton

The business and PR response in the past 15 years has been to avoid the debate by dressing up seriously large increases under the banner of performance pay. A whole industry has grown up to design incentive packages. These tend to be highly complex but the theory is simple enough. If shareholders do well, the executive also does well and will receive a bonus.

This is not the place to describe the problems with performance pay. Suffice to say that in practice it works like the Caucus Race in Alice and Wonderland. No-one knows where the race starts, how long it runs for nor where it ends but everyone is declared a winner and gets a prize. Anyone who thinks that unduly harsh should look to the research - there are dozens of studies of listed companies that show absolutely no correlation between the massive increases enjoyed by executives and the performance of the company.

Interestingly, while there has been the occasional serious high-profile row down the years, in general no-one has really cared that much about the largesse heaped on executives, possibly because everyone else seemed to be doing well too.

But an economic slowdown looms and that will change the public mood. Already there are signs of a backlash against City bonuses. This is going to be one of the big PR challenges in the coming year.

Business is likely to underperform, but on past performance executives will still expect to pass Go and collect. Explaining, let alone justifying, big pay rises to a hostile public will take much tact and skill - though admittedly less that the alternative, which would be to persuade the executive to show a bit of restraint.

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