Payment by results?
February 23, 2012
By common consent, two types of employee in the modern world are vastly overpaid: bankers and footballers. The difference, again by common consent, is that if footballers don’t perform, it is obvious and they are got rid of – the Darwinism of the market. Whereas, bankers continue to earn vast sums despite their banks making losses and ‘failing’.
This paradigm doesn’t address the fact that football, for all its theoretical meritocracy, has got itself locked into a business model that just won’t work; bad footballers may get paid little or nothing, but the market has become so distorted at the top end that not very good footballers can be paid a fortune. Hence when their performance is analysed by minutes played, or by goals scored, or by assists or effective tackles, each useful contribution can be costed out to tens of thousands of Euros.
That’s the mad world of sport, nearly as mad as the bad world of banks where they have invented games so complicated no one understands them, but dare not make them stop playing.
At least in straightforward business performance can be measured by the P+L and shareholder value, and executive pay will reflect that. You think? A pay consultancy in the UK (Patterson Associates) has analysed some big businesses and their CEO’s remuneration by taking the dividend (if any) and the 12 month growth (or shrinkage) in share price – i.e. the total theoretical return to each share held – and compared it to the CEO cost per share, i.e. his or her total package divided by the number of shares in issue. In a perfect world the resulting sum would be positive and stay that way, as why would you keep adding to an executive’s pay if that was eroding returns to the owners (i.e. anyone with a pension or insurance policy)?
It is a blunt instrument – much finessing would be needed in a company that had had a share issue or bought back shares in the analysed period, for instance – but revealing. In Rolls Royce, for instance, £5,182 was made for shareholders for every £1 paid to the CEO. At Tesco £1,028 was made for every £1 of remuneration. But at Marks & Spencer £4,979 was lost for each £1 paid and at RBS bank – owned by UK tax payers – £34,275 was lost by shareholders for every £1 paid to the CEO – and that’s after he turned down his bonus.
It is virtually impossible to work out the maths for News Corp – its share structure being so arcane – save to say the Chairman was paid $33 million in 2011 and the Deputy Chief Operating Officer was paid $12 million after turning down a $6 million bonus in light of the ‘difficulties’ at News International.
It will be interesting to compare companies in the media sector on this basis, particularly in terms of where they are located – the Sidney Morning Herald points out Murdoch has paid himself 2.5 times as much per annum since the company moved to America – and to contrast the fortunes of (and made in) content companies and technology companies.