“I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day, because someone is going to pay me more or less.”
John Cryan, the new co-chief executive of Deutsche Bank, was only being honest. It has always been a fantasy that the whiff of a bonus makes members of the executive class strive harder or better. Pay-for-performance, the supposed philosophical underpinning, is an elaborate cover story, encouraged by fund managers who drink from the same trough and endorsed by consultants with spreadsheets for sale.
Jeroen van der Veer, former chief executive of oil giant Shell, was similarly candid half a decade ago: “If I had been paid 50% more, I would not have done [the job] better,” he said. “If I had been paid 50% less then I would not have done it worse.”
The problem, of course, is persuading remuneration committees to apply common sense, and executives to accept reform. Cryan, unlike Van der Veer, has made his comments at the start of his reign as chief executive. Does that mean he will refuse to sign the bonus-laden contract he regards as nonsensical?
Don’t hold your breath. When he was asked last month whether, given Deutsche’s appalling recent performance, he would decline to take a bonus for 2015 or 2016, Cryan didn’t exactly volunteer to lead by example. “This is a matter for the supervisory board,” he replied. That’s what they all say.
Good logic, bad tactics
Dermot Desmond never normally comes across as the hesitant type. The Irish investor-cum-gambler-cum-racehorse-owner stayed at the Sandy Lane hotel in Barbados in 1996 and liked it so much he decided to buy it the next day, or so the story goes.
A dash of impulsive spirit would have worked better at Ladbrokes if Desmond was serious about trying to quash the £2.3bn merger with Gala Coral. He launched in public his blistering point-by-point attack on the deal’s logic only last week. If he had fired off his analysis in July, soon after the betting firms announced their deal, he would have stood a better chance of converting a few sleepy fund managers to his cause.
As it was, 96% of votes backed the Ladbrokes board, implying that Desmond, waving his 2.8% holding, was virtually alone. That’s a shame because two central points raised by Desmond deserved a full debate. First, the “scale and cost” of shop disposals that will be forced by the Competition & Markets Authority (CMA), is “totally unknown”, and thus a big risk to the deal’s arithmetic.
Second, Playtech, software supplier to both Ladbrokes and Coral, will receive a £75m termination payment as a result of the merger but will then be rehired on terms as least as good as the old ones; that hardly indicates tough negotiating by the merger partners.
Desmond, after confessing regret at not going public earlier, vowed to attempt a late run on the outside. In practice, that means trying to force a fresh shareholder vote on the deal after the CMA has spoken. Since Ladbrokes chairman Peter Erskine has already said no, another vote looks a very long shot indeed. Desmond got his tactics wrong.
Rolls-Royce must reserve its seats
Even after five profits warnings in two years, it’s still too early for Rolls-Royce to be confident that its rotten run is about to end. New(ish) chief executive Warren East confessed that “mud in the system” and “accounting fog” could mask problems that would prompt another warning.
Fair enough. By this stage shareholders will be happy with any boss who promises to improve internal controls, remove bureaucracy and respond quicker to shifts in the market. East’s blueprint for self-help sounds like the work of half a decade, but the prescription seems broadly correct.
Does he need a helper? Specifically, should ValueAct, a US activist hedge fund and now 10% shareholder in Rolls, be granted its request for a seat on the board? The company is considering the proposal and many big City shareholders are said to be keen.
Don’t do it. Hedge funds come in many varieties and ValueAct is more long-termist than most. It is also said to be co-operative in style. But it is too soon for a board seat. Let ValueAct offer its ideas and any expertise from the outside and assess its contributions after a year or so. East and colleagues should have a clear run at the outset – it’s what they are being paid for.
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