VIEW FROM THE GROUND FLOOR: At what point does a package that includes a guaranteed bonus and loads of share options just become money for old rope?
Lots of lists in the last week for list-minded people to pore over. The one that interested me most was the Forbes 500, which ranked the performance of the US's largest corporations. Companies are ranked from one to 500 by sales, assets, profits and market capitalisation. Forbes then complies the list from an average of the categories.
The results over the past five years have seen the number one and two slots go back and forwards between Citigroup and General Electric and this year the rankings were too close to call. So Forbes (rather like the Olympic ice-skating judges in Salt Lake City) awarded first place to both of them. You wouldn't expect the top five companies to change very much, and they don't, but what is interesting is that, as the magazine remarks, corporate performance in 2001 was dreadful. The aggregate net income of the most profitable 500 companies in the US declined by 23 per cent - the worst performance in nine years (and even then profits were only down 10 per cent).
Forbes had been cautious about potential profitability in last year's list although in 2000 it, like so many, had bought into the new economy story, reminding us that in 1999 profit growth was at its best for five years. How things change.
The question is, of course, has remuneration fallen by 23 per cent for the executives of companies whose profits have plunged so much? Does it ever? The Forbes 800 best-paid chief executives list for this year isn't available but according to last year's list Sandy Weill, Citigroup chief executive, cashed in stock options of $196.2 million (€224 million) as well as a bonus of $18.4 million. Over five years, Sandy earned $785.2 million. Is anybody worth that much?
The worst thing about these "compensation" packages is that Europeans, including Irish companies, refer to them when awarding significantly more modest but still probably overvalued packages to their executives on the basis that they have to "retain the best" even in the bad times.
The subject of executive pay was also raised in Britain last week, with the Prudential's remuneration package for top management. Chief executive Jonathan Bloomer could earn as much as £4.6 million sterling (€7.5 million) if the Pru is the best performer in a group of international peers. Most commentators think that's pretty unlikely but Bloomer is still expected to earn a bonus of £900,000 this year on top of his £660,000 salary.
The general feeling is that the package is high but not horrifically so - not measured against Sandy Weill's anyway. I hope all the staff are paid performance-related bonuses too, and that those bonuses are set in line with the averagely demanding yardsticks set out for senior management.
Actually, I don't mind people being paid lots and lots of money. I like being paid lots of money and anyone who says that having a few bob doesn't make your life a lot easier is clearly marching to the beat of a different drummer. But at what point does a package that includes a guaranteed bonus and loads of share options just become money for old rope?
Looking at Allfirst, for example, it seems that, although Susan Keating didn't receive a bonus last year, she has share options worth more than $6 million. For what? Knowing all those contacts that are so important to the bank? Part of the defence offered by AIB management in the Rusnak debacle is that she wasn't long in the bank and, therefore, couldn't be held responsible. If she's spent such a short time with Allfirst then why has she so many options? And with options worth $6 million, she sure as hell should be held responsible for everything that went on!
I couldn't honestly be bothered with the personal rich lists this year because, well, who cares? When the money runs into the billions it becomes irrelevant although I do often wonder what it must be like to know that you can pretty much buy anything you want. Does it take the spice out of life? Or do very, very rich people still compare prices and shop in places like Aldi? (Many of the well-off people I know are actually extremely parsimonious with money, thus verifying the cliche of looking after the pennies . . .)
Obviously I don't move in the exalted circles of the euro-billionaire club but I have to say that both at the time I was a client and the time I worked for him (when he was a mere millionaire) I thought that Dermot Desmond was an extremely generous man with his money and so I wish him every joy with the billions. I do remember being in a group of traders muttering about making money being as much about luck as judgment (on a day when we'd managed to lose even though the market had, belatedly, moved in the direction we'd expected) and Dermot has ridden his luck remarkably well.Getting out of Afghanistan back in 1979 was clearly a good start!
Luck has run out, of course, for German media group Kirch, which filed for bankruptcy this week. The knock-on effect of the company's collapse will be felt in the economy as a whole since German economic luck turned a decade ago and has not recovered since. Between them, the German banks have outstandings of about €2.25 billion to the group, which is a hefty blow to absorb for an industry that has seen a number of high-profile customers struggling of late. Kirch, like ITV Digital, over-valued the worth of sporting occasions and paid far too dearly for securing rights to them. The Kirch executives, also like those at ITV Digital, were presumably paid their large salaries in case their expertise went somewhere else. Presumably the sporting organisations, the shareholders and the banks rather wish it had.
