It is the bankers' fault, of course, as is everything else these days, but the issue goes well beyond their bonuses. In the good times, it was easy to accept the premise that higher pay led to improved business performance. Then we discovered the hard way that all this money and paying for talent had provided very little downside protection. The result is that voters and politicians have reacted badly to the idea that they have to shoulder the pain of recession, while those seen as responsible for causing it and who were so richly rewarded, carry on as if nothing has happened.
Attitudes have shifted materially.
As far as the public is concerned, excessively high pay is increasingly seen as socially inequitable. Unfair bonuses destroy morale and trust within the company, as well as from the outside - a trust that gives capitalism its 'licence to operate'. Patience in political circles is also wearing thin. Indeed, institutional shareholders have been told in private briefings with ministers that if they do not assert their authority as owners to impose some sort of restraint on what executives take out of the business, then the politicians will.
For the first time in 35 years, a government-imposed pay policy is a possibility.
On the other hand, institutional shareholders have not lost all faith in performance pay, but they now understand incentive schemes have to be much better designed. They feel that too many firms have delegated pay to their remuneration committees, which, in turn, have been captured by consultants. The result is schemes of huge complexity that bear little or no relation to the real needs of the company and lack any close link to the corporate strategy.
This then is the PR challenge.
To be acceptable in this brave new world, executive incentive schemes must be easily understandable. It will have to be obvious how the policy integrates with the overall strategy of the business and helps deliver its key elements. Above all, firms will have to answer the question of 'why?' rather than 'how much?'
- Anthony Hilton is City commentator on the London Evening Standard.