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Bonus scam admitted at last

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  • Julia Finch
    • guardian.co.uk, Tuesday 9 June 2009 20.57 BST

At last! The myth that executives require bonuses – on top of substantial salaries – to coax them into good performance has been exploded.

Jeroen van der Veer, outgoing chief executive of the oil firm Shell, has admitted that the way he did his job was not affected by his pay. He told a conference in Abu Dhabi: “If I had been paid 50% more, I would not have done it better. If I had been paid 50% less then I would not have done it worse.”

This is heresy in the corporate world, where executives, their remuneration committees and pay consultants justify multiple bonus opportunities as essential to motivate, incentivise, recruit and retain “top” talent.

Without an extra cash carrot, they would have us believe, bosses would just turn up, do their expenses, and head home. They would not maximise profits, meet targets, hand over to their successors in a helpful manner, install IT systems or even move house.

To suggest they might just get on with it in return for the already substantial rate for the job, has been to prompt a lecture on unworldly naivety. Ask one of those corporate bosses in receipt of a fat bonus why they need an incentive to do their job to the best of their ability when workers ranging from surgeons to school caretakers do not, and they are usually at a loss for a coherent explanation.

The panoply of bonuses and awards has simply become the norm. Most executives know that it is a lark, because it does not make any difference to what they do. Probably the only large group of workers for whom bonuses directly impact their behaviour are those who get a direct slice of the profits and can make bigger profits from taking bigger risks. They are called bankers, and we all know where that’s got us.

The problem with Van der Veer’s epiphany is that it has come a few weeks too late. At Shell’s general meeting last month, just under 60% of shareholders voted down the oil group’s plans to award millions of pounds of shares to executives despite missing performance targets that should have reduced the payout to zero. It was the second biggest rebellion seen at a FTSE 100 company.

Van der Veer’s share of the £3.6m payout was more than £1m – on top of £9m of other pay. Shareholders are far from forgiving Shell, and Jorma Ollila, the group’s chairman, Sir Peter Job, head of the remuneration com mittee, and others are all going on the road over the next three months in an expensive attempt to rebuild Shell’s reputation.

Given his view on executive pay, it would have been far cheaper, and far more honourable, if Van der Veer had simply handed the bonus back – or refused to take it in the first place.

GUARDIAN ARTICLE

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