The news of the European Central Bank's (ECB) sudden change of heart came too late for me to comment on last week and most of what needs to be said about it has been said already. But I couldn't simply pass it by without asking what exactly the ECB is thinking of.
The right move but very shaky reasoning. I have to agree with those people who think that the bank has damaged its already creaking credibility even further. After all, they've spent months lecturing the markets on the evils of euro-zone inflation, reminding us that Europe was immune to potential recession and insisting that cuts were unnecessary. So heaven only knows why Wim Duisenberg changed his mind. It does seem unfair on the bank that it is equally condemned for doing what the market wants as it is for not doing what the market wants, but perception is everything and the ECB is perceived as being so far behind the curve as to be almost in the wrong ballpark. I thought about the ECB board while I was listening to a radio report on executive bonuses. If they had to meet specific targets to get a bonus it would be a difficult call. After all, the euro is still languishing against the dollar, euro-zone growth has never been spectacular despite what they've told us and the ECB has missed its spurious 2 per cent inflation target. But poor performance hasn't stopped private sector chief executives raking in huge bonuses. There have, in fact, been a number of reports on performance-related schemes for executives recently. Despite scouring the Net, I wasn't able to get a copy of the PricewaterhouseCoopers report, although I did see one sponsored by Leverhulme Trust, but generally anything to do with long-term incentive plans makes a riveting read.
Mainly since they confirm everything I've always thought about company chief executives, which is they get paid too much. I'm not jumping on the "fat-cat" bandwagon, which is already loaded up with sheer envy. Of course, I believe that good performance should be amply rewarded. However these reports infer that the "good" in good performance is benchmarked at a level that most people would define as "decidedly average". The head honchos are getting bonuses based on targets that are so unexacting as to be achievable by simply turning up in the mornings. In fact, many of them probably think the less-than-ambitious growth figures that they have to reach might be impaired by their very activity.
We don't, of course, have to look very far to see examples of it here - I wasn't able to invoke the ire of Michael Smurfit by posing questions at the company's recent annual general meeting because I'm not even a small shareholder any more as I got tired of losing money. And yet the his bonus doesn't exactly reflect the sorry state of shareholder value. His frequent comments that he owns a lot of shares and that the poor share price upsets him as much as anyone else falls on very deaf ears. Anyone who's earning £5 million (#6.3 million) a year has a fairly decent means to cushion the blow of a mere 2 per cent total return to shareholders over the past 10 years. Companies tell us that their leaders will be poached if they don't pay up to keep them. So what if they are poached? If they're not performing for the company, why should the shareholders care? A somewhat more prosaic chief executive is Scott McNealy of Sun Microsystems, who expects to earn only his basic salary of $100,000 (#114,550) this year. Last year his bonus was $4.7 million so he's not exactly in the poorhouse, but the company has been hit by the technology blow-out and is trying to weather the storm. Unlike other companies, Sun hasn't laid off any workers yet but is shutting down for a week in July when 38,000 US employees will take holidays or unpaid leave. At least Scott is sharing the pain, no matter how anaesthetised it is by last year's bonus.
Over at Ericsson, the bonus scheme has been changed too. This year's management bonuses rely on cashflow objectives being met. Last year the executives could have received up to 40 per cent of their salary in bonuses by hitting targets in their own particular divisions. In the climate that prevailed then, those targets were not necessarily very difficult to achieve. But now their bonuses are dependent on group cashflow instead. The company suffered negative cash flow of more than $1.5 billion in the first quarter so management has quite a task on hand to reverse it, which means the Ericsson executives won't be sitting around doing nothing. Thomas Meredith and Alex Smith, the co-managing directors of Dell Ventures, the venture capital arm of Dell Computers, have resigned following 4,000 job cuts and massive restructuring in the company. Who knows what kind of targets the company has set for the coming year but, whatever they were, in the current climate they might well have been difficult to achieve. So Alex and Thomas decided to call it a day.
Apparently Thomas told people that he wanted to spend more time on other projects. He didn't mention hosting extravagant golf tournaments but did express an interest in politics, a money-burner if ever there was one.
When it comes to politics I find the ideology dreary and irrelevant. The economy should be run like a business with a social conscience. I've often thought that business people would make a much better fist of it than politicians who don't care what they're not doing once they're not doing it better than the opposition. But lately I've begun to wonder. I prefer to think of Irish executives wasting shareholders' money rather than taxpayers' money and long-term incentive plans certainly don't do shareholders any favours. So maybe keeping chief executives at the corporate helm and out of the political arena is doing most of us a favour after all.
