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In it together

15 April 2016 By Breakingviews columnists

BP shareholders blew a raspberry on Thursday to the $20 million pay package the board had awarded boss Bob Dudley for 2015. It was – fortunately for him – a non-binding vote on compensation. The collapsing oil price makes it uncomfortable to see an energy chief paid big money. But is a downswing exactly when higher rewards are needed? Breakingviews columnists opine on whether chief executives should get more or less when markets are against them.

Liam Proud: MORE

Are the bad times of the CEO’s making? Giving someone a bonus to clean up their own mess is inexplicable – far better to fire them. But juicing up a pay packet to get the best person for a crisis is just sensible. Of course the inverse is also true: CEOs who expect extra stock awards during rescue operations should take a cut when the job gets easier. Props to Richard Pennycook, the Co-operative Group boss, who asked for, and got, a 60 percent pay cut this month.

Jeffrey Goldfarb: LESS

Led Zeppelin had it right when they sang in their 1969 corporate governance hit: “Good times, bad times, you know I had my share.” If CEOs are paid with long-term stock incentives using sensible performance measures, the compensation should take care of itself regardless of specific corporate or macroeconomic conditions. That said, executive pay on the whole has grown at such preposterous rates, and even the best bosses are almost always overrated.

Andy Critchlow: MORE

Good chief executives show their greatest value to shareholders when managing a business during tough times. They should still be rewarded for achieving measurable targets in unfavorable trading conditions – especially in cyclical industries such as resources. Discouraging CEOs from making tough decisions is counterproductive for investors in the long term.

Fiona Maharg-Bravo: LESS

Dudley has a tough job and has done well bringing BP back from the 2010 Gulf of Mexico disaster. But Dudley is now cutting thousands of jobs so the company can better deal with cheap oil. In that context, a 20 percent pay rise is jarring.

John Foley: MORE

Happiness and the love of peers is its own reward. Put another way, sacking a bunch of people every day is unlikely to make you come to work unless you are a sociopath. The Co-op boss has it right in that sense: a tougher job in a tougher market needs a higher reward, as other kinds of motivation will be lacking. But that will only work if remuneration is clearly explained and structured simply. This is where BP fell flat.

Una Galani: LESS

Chief executives should lead by example and their remuneration should be reflective of the times. Ideally you would cut the base pay and increase the stock awards, structured in a way to provide an incentive to return a business to a sustainable footing over the long-term.


The times shouldn’t really matter. It’s really a question of whether a CEO has had to face truly unexpected challenges – and handled them with aplomb. Given the way CEO pay has escalated beyond any reasonable justification, boards should only do this in instances of measurable outperformance under extraordinary duress.

Peter Thal Larsen: MORE (but)

Top executives massively underestimate how much their success – or failure – depends on luck, long-term trends and timing. Effectively measuring their input is almost impossible. Like most humans, CEOs tend to take personal credit for success and blame other factors when their companies underperform. By all means, pay them more when times are tough. But the same logic dictates that when things are going well, they should thank their good fortune – and accept a pay cut.

Neil Unmack: LESS

Obviously. But this should be through their stock awards, not their base salary.

Olaf Storbeck: LESS (but)

If bad managerial decisions are at the root of the issues, the CEO probably should be fired, not paid. The successor, who has to sort out the mess, deserves a big financial incentive which should be highly dependent on the result of the turnaround strategy and paid out after success is clearly visible. Germany’s Volkswagen is at the centre of a similar debate now. If bad times are widespread, the group’s relative performance to peers may be the best benchmark.

Sarah Hurst: LESS

If jobs are being slashed, the CEO shouldn’t be getting a big bonus. True, in the oil industry the company’s performance is dependent on a price beyond its control. But if workers have to suffer as a result, the CEO should too.

Ben Kellerman: LESS

Pay bumps draw more ire from workers and the public when a company is already in the spotlight. CEOs should be able to get back to pre-crisis comp levels, but nothing more, through future bonuses. The metrics need to be well rounded and address the root of the problem when possible. See Chipotle’s new bonus program – tied solely to short-term stock gains – for a lesson in what not to do.

Dominic Elliott: LESS

The staggering jump in chief executive pay since the late 1970s has far outstripped the average worker’s salary. Remuneration committees and shareholders have failed to halt its rise, so regulators should step in. Capping all CEO bonuses at 20 percent of salary, as the Dutch have done with banker pay, would be an extreme measure. But it might be worth a try.

VERDICT: LESS. No one said a falling market was supposed to be fun.


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