Pay pals?

Rather like super injunctions and Jordan, the vexed question of executive pay, especially that of bankers, is seldom far from the headlines. This week has been particularly colourful with Antonio Horta-Osorio (pictured), the new Lloyds chief exec, receiving a roasting from shareholders over his £13m golden handshake package when he attended the bank’s AGM in Glasgow.

Standard Life’s top personnel faced a similar barrage of criticism over remuneration at their company’s AGM in Edinburgh this week. According to a report in The Scotsman, the insurance and pensions company announced that it was a ‘fair wage employer’ as its lowest paid workers, outside of London, received £7.20 an hour.

A later report in The Herald may have made many question the use of the word ‘fair’ when the company’s annual accounts seemed to reveal that the average member employee pay was some £151,000 in pay and incentives.

At £7.20 an hour, it would take one of its lowest paid employees 524 working weeks at 40 hours a week, or roughly ten years, to earn the same amount as the notional ‘average member employee’ does in a year.

One man who has been examining executive pay in forensic detail is Jens Hagendorff, a Senior Lecturer at the University Of Edinburgh Business School. According to a new research paper from Hagendorrf, ‘banks are more likely to engage in risky takeovers when their executives are personally compensated for doing so.’

Basing his study on US bank acquisitions in 1993-2007, a time when chief executives were offered increasingly large amounts of risk-based compensation, he found that, surprise surprise, banks whose chief executives received higher incentives engaged in riskier behaviour than they had previously.

The full paper is here but you probably don’t need to read it to draw lines between bankers being encouraged to take risks and the current rocky financial climate.

Writing in his blog The Ledger, BBC Scotland’s business and economy editor, Douglas Fraser looks at the wider question of executive pay in relation to a number of Scottish companies.

Also, in response to a thirteen-year-old reader’s question, he also asks other readers to come up with a simple, easy to understand explanation of why bankers, specifically, are paid so much.

He asks that the explanations are pithy enough to fit in the 160 characters of a text message. They should make for interesting reading. We will point you towards the results when they come in. They might be useful for any Vistage Scotland member currently trying to work out a pay structure for their business.