Becht’s £93m seems strangely acceptable
As aliens go, Bart Becht looks pretty human, even if his £93m reward for running Reckitt Benckiser looks astronomical. But if Barclays’ Bob Diamond was denounced as the “unacceptable face of banking” for allegedly receiving £63m, what is Becht?
It was the CBI’s director-general, Richard Lambert, who warned that if companies act as though they occupy a different galaxy then chief executives will be treated like aliens. And he warned that the bad press received by bankers will spread to wider business. Yet Reckitt’s chief executive has received a record reward without the opprobrium that bank chiefs received.
Becht’s basic pay in 2009 was £1m. The £3.5m bonus on that is thus pretty highly geared. Then there is £400,000 of pension contributions before he exercised £75m of share options and received £13m or performance-based restrictive shares. That adds up to the £93m, and while the options were granted in past years, another £30m were granted last year, so whatever figure you choose, it is pretty big.
But Becht’s added-value cannot be argued with. Reckitt (LON:RB) is one of the FTSE 100’s top five performers during his decade as CEO. Turnover has doubled and profits quadrupled. The options are worth so much because the shares have risen and his bonuses are performance-related.
Mr Diamond at Barclays (LON:BARC) can offer a similar defence of his rewards, even if business secretary Lord Mandelson may have stretched the maths to reach £63m when denouncing it as unacceptable. As Lambert commented, this is the first time in history a manager can make real money rather than an entrepreneur-ownership.
But Lambert warned business that it must look in the mirror and see itself as outsiders see it.
So when Becht looks in his mirror does the charming Dutchman look like an alien? Despite Reckitt’s cleaning products, the image is not clear, unfortunately, and while donating over £100m to charity does not alter the argument over pay, it does deflect the critics.
Lambert has opened a discussion worth pursuing – and Mandelson has made a strident contribution – but Becht’s rewards only complicate the debate. He appears to be an acceptable face of manufacturing.
April 8th, 2010 at 6:33 pm
Goodness me. The difference is elementary, Sir.
Barclays share price has halved over the past couple of years.
Reckitt’s has risen.
The issue is that pay should be linked to performance.
Diamond’s pay is evidently not. (Of course he can produce an argument as to how he contributed).
But the overall return does not lie.
They are not held accountable.
And yes it does make a difference that Becht has given the money to charity.
Why would that not make a difference?
There are two issues:
(a) the absolute level of rewards.
(b) reward while leading the ship into an iceberg.
The first is the point about managers being seen as aliens.
The second is far more egregious and also dangerous to the system itself.
Diamond is far worse than Becht.
April 13th, 2010 at 2:54 pm
Pay can never be truly linked to the underlying fundamentals of performance. How do we know that Reckitt Benckiser is truly healthy? It wouldn’t surprise me if it is under severe internal stress due to the pressure to constantly increase margins, an approach which cannot succeed forever. Many companies have suffered the consequences of this stress after the departure of a “brilliant” CEO.
There is always a risk that the share price will fail to reflect changes to the underlying health of the business during a director’s tenure, which may not become apparent for decades to come. Alfred P. Sloan created some of the attitudes, assumptions, and structures which eventually failed GM. What about Jack Welch? Is the flat share price since he left GE not connected with his tenure? Either he groomed incompetent successors who are responsible for the recent poor performance, and his pay should have been docked for that failure, or his successors are competent, and it is unfair on them that he received all the credit (and bonuses) for the overall growth in GE’s share price over the last thirty years, when it was simply luck that he left before the market corrected itself.
It would be better for society, and for the future of capitalism, if no executive earned more than say fifty times the average salary. CEOs do not take the same downside risks as entrepreneurs so they do not deserve the same upside rewards. And, also for the sake of the economy, anyone who has entrepreneurial skills worth more than fifty times the average salary should create their own company.
Companies from countries with relatively modest CEO pay often do better than rivals from the UK and the US. For that matter, American companies did as well if not better than the do now when CEO pay in the U.S. was relatively modest.