Sunday 1 August 2010

Taking part in a BBC McDebate

I was on the new BBC Sunday Live programme this morning, talking – if you can call it that – about Tony Hayward’s £1m pay-off. I had forgotten just how frustrating those kind of programmes are.

It is a fantasy, of the BBC and others, that getting lots of people to phone in with comments and having a studio panel with others, who are not particularly well-informed, is somehow a contribution to democracy.

In practice, the technology barely worked. The phone-in consisted of one Scottish lady saying “Nooooo!” very slowly. And in any case, there is almost no scope for saying anything very different or exciting in this kind of McDebate.

But it did make me think a little. Apart from the problem of the size of Hayward’s severance package, which is just another symptom of the way we are creating a cadre of ubermensch in the corporate world, the issue here is really about efficiency.

How much money do we need to incentivise the right people to take the job in the first place? A hundred times average salary, a thousand times? Either way, if we pay more, we are not using our corporate assets – and most of us own BP in one way or another – very efficiently.

Especially as we then incentivise them all over again to achieve a series of narrow targets. The problem isn’t so much paying the ubermensch for failure, it is incentivising them in this narrow way in the first place.

Real success is not about share price, or sales, or anything else that can be summed up in a couple of numbers. When you give executives incentives to meet them, you pervert the performance of the company, with disastrous results. The banking crisis was accelerated by perverse, short-term incentives.

So I don’t have a problem with paying Tony Hayward for doing his job, whether he fails or not. I do have a problem with incentivising him over and over again, and far beyond what will actually affect his behaviour, to achieve narrow, damaging and perverse targets.

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