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The scandal of the grotesque rewards that accrue to failed executives

Enron, Lehman Brothers, Royal Bank of Scotland…Royal Dutch Shell – what have these corporations got in common? Quite a lot actually but what I was thinking of in particular is that they all have issued glossy and self-promoting documents extolling their “Corporate Social Responsibility” (CSR) – and all of them have been brought to their knees by the grotesquely dysfunctional actions of their most senior executives.

I have written before about the illusionary myth that is CSR and I suppose that the one good thing that might come out of the global financial crisis is that none us will ever again trust the disingenuous garbage that corporations choose to throw at us from time to time. The idea that, say, a tobacco giant like BAT can be socially responsible is absurd but they still peddle this nonsense even though they surely can’t expect us to believe it. Do they really believe it themselves? – I doubt it.

But of all the current areas of public disquiet about the behaviour of the top men in multinational corporations it is the obscenely high levels of remuneration that they pay themselves that comes out top. Here is how it works. The Board of Directors appoints one of their number – usually a Non Executive Director – to head up some sort of Remuneration Committee. That Committee is charged with ensuring that the Executive compensation of the CEO and his colleagues is competitive with the remuneration of executives in other corporations. If it isn’t then it is adjusted – always upwards of course! The fallacy of this whole process is for all to see – it creates a spiral of remuneration excesses. To illustrate this I looked back ten year to the late 1990s when I was a middle ranking Shell executive and Mark Moody-Stuart was the CEO. At that time Mark was paid ten times what I was paid. Fair enough you might think – he had a pretty big job. Roll forward to today and the same ratio is now fifty to one! If I was in the same job in Shell, and allowing for inflation of my salary as well, Jeroen van der Veer would be paid at least fifty times what I would be paid – probably much more than this.

But as we have seen with the case of Sir Fred Goodwin of RBS the excess doesn’t stop even when a failed CEO is unceremoniously booted out of his job. Sir Fred qualifies for a pension of £693,000 a year – an entitlement that has caused a furore in Britain, and understandably so. And back in 2002 Sir Philip Watts’ (shown in photograph) severance payment following his forced removal as Managing Director of Shell consisted of a lump sum payment of £1,057,971 and an (index linked) pension of £584,070 per annum. Goodwin and Watts and their ilk would no doubt have justified their extraordinary levels of remuneration by reference to “the market” – that spiral of excess that I described above. And perhaps they would also have said that extremely high levels of responsbility require extremely high rewards – and perhaps they do, but only if these responsibilities are discharged with competence and with honour – which in both their cases certainly did not happen. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

1 Comment on “The scandal of the grotesque rewards that accrue to failed executives”

  1. #1 MUSAINT
    on Feb 28th, 2009 at 12:04

    At least in the papers I have read and TV news I’ve listened to, the pension gripe (correctly so) has been targetted at banks and similar institutions. I’ve not heard of Exec. pension complaints about the likes of Shell recently (except perhaps on this website). At least Shell has made large profits, banks have not.

    Taking another view, your stated ratio for CEO to middle Shell Execs. having gone from 10:1 to 50:1 could reflect the relatively low pay for Shell Execs. a few years ago. I certainly believe that Exxon’s CEO was paid way higher than Shell’s 10 years ago. I wonder what their ratio’s have changed by.

    Fred the Shred’s pension with RBS is indeed outrageous – thank Greedy Gordon’s man for allowing this to happen last year.

    The bottom line is that the board’s remuneration often has to be ratified by shareholders who must shoulder some of the blame for these high pensions. Don’t get me wrong, if a person performs badly he should not be rewarded with high bonuses and pensions. Unfortunately these are often written into legally binding contracts. It’s shareholders who should have a major say / veto upfront, and not retrospectively.

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