Oh dear! Oh dear! - Have we learned nothing about executive pay?

The world is going crazy - or at least it seems so. Despite all the fuss about executive pay - nobody with the power to act appears to have the guts to challenge the proposed executive package for Stephen Hester at RBS (reputedly worth £9.6m)

I agree with Roger Lawson, of the UK Shareholders Association who said: “The Government doesn’t seem to have learnt anything. Such a package incentivises reckless behaviour and encourages risk taking. It is absolutely outrageous that the Government does not use its power to bring the remuneration of bankers in these companies down to a reasonable level. Do they need to pay him this much to make him work harder?”

But there's an even deeper issue here. Namely that the senior executives who are setting pay packages continue to believe that Share Price is the best benchmark of corporate success. Frankly it isn't.

Let me explain the reasoning for this departure from the paradigm of "big corporate" thinking.

Share price is based on the market's expectations of profitability, cash flow and other financial measures. So far so good. But that does not explain how a company is improving the well-being of its various stakeholders.

The share price can rise through cost reductions and yet the staff may be much worse off. Share prices can also rise at the expense of price cuts to suppliers. Or prices can be raised to customers - thereby giving bigger profits and a share price hike... you get my drift? In fact this latter scenario is already beginning to make itself felt in the mortgage sector with institutions raising their interest rates for funding - and this is now being passed on through hikes in Fixed Rate mortgages, even though the Bank of England has kept interest rates at 0.5%

Earlier today I was discussing this false philosophy on share prices with Bay Jordan - a South African Accountant based in the UK who has an amazing take on the value of human capital. His website is here.

We both felt that the present Government (through UK Financial Investments) has missed a real trick in accepting the proposed package for Stephen Hester. Undoubtedly the people at RBS want a top-man to help guide them out of their present mess - and top men command top dollar in remuneration circles.

But UK Financial Investments - as holder of 70% of the common stock - could have insisted on a more radical approach. Instead the boys at the Treasury seem only to want to maximimise the share price to ensure a rapid exit from the holding at a nominal profit to the taxpayer. But wait a minute! Aren't the various stakeholder's also largely members of the UK community - and hence worthy of a little more consideration than just a quick return of cash to the Exchequer?

Have we collectively learned nothing from the debacle of the last 9 months?

If you agree then time to start lobbying hard. The boys at Westminster are still on the back foot following the expenses row and know that they need to work harder to earn back our trust. What better time than to extol the virtues of some much more radical thinking about what we will accept (as a society) in our corporate boardrooms and beyond?

Is anybody THINKING?

Just who is there in the media and the political elite who is actually asking the real questions? The current brou-ha-ha about the demise of Labour at the polls may be great political entertainment but it is not getting to the nub of the real problem.

So what do I think that is? Well put in a nutshell it is a case of the Emperor's Clothes. Anyone who has followed the latest series of The Apprentice will have observed the apparent (mis)understanding of the contestants. Namely that to behave in what can only be described as arrogant and outrageous ways is what is needed to win in business. This style of behaviour is as devoid of reality as the aforementioned suit of the finest style and cloth...

Take the analogy into the political arena and it becomes clear that the present Government (like its predecessors) does NOT realise that what it legislates for is not delivering what the country needs. Now you can set aside party politics for a moment because this is about process not content. We have had the appointment of Sir Alan Sugar as Enterprise Czar a move that conveniently overlooks the real needs of business here in the UK. Sir Alan for all his experience is not a small businessman. His understanding of the world is coloured by the fact that for most of his life he has been answerable only to himself. So anything he may propose is not necessarily what is really needed. But the appointment gives the impression that a new suit of clothes has been made that will clothe the Government with the respectability it craves.

What Government CAN do (but chooses not to) is to insist that a philosophy is understood by those in the Civil & Public Services about how things ought to be run for the good of us all. Let me give an example.

For whatever reason - Local government and other bodies feel it is incumbent on them to carry out procurement for goods and services that are immune from suggestions that favouritism - or worse, bribery - are at play. What ensues are ridiculous Tender requirements that pay no attention to the delivery of the benefits that such purchasing should be looking to deliver. Instead there are endless hurdles to be overcome by small enterprises that could otherwise deliver fabulous value to the public. The net result is that despite Government protestations to the contrary - we are now in a much worse situation with regard to achieving value for the public purse than we were before such pressures were put on the Buyers in the first place.

The connection between this and the current political and economic situation is lost in the media noise. But sit back and reflect. If we got much better value for public spending than is currently the case (and there is sound data around that supports the view that we could get at least 30% more bang for our buck without causing misery to anyone) then we might not have to belt tighten to anywhere near the extent imagined to put the finances back in order. Of course this does not fit with the spin put forth from most corners of the political playing field.

I cannot imagine Lord Mandelson actually engaging with this as a viewpoint - which is a shame given that he started life as a Management Consultant and ought to be capable of making the distinction. Instead there is too much focus on personality and the belief that the country can be led out of the mess that is not of its own making but is instead the result of the disintegration of financial artifice. Reality has dawned but not - it appears - on the political stage. So we are left to wonder how many more Acts are left in the Music Hall before the final curtain and the audience can emerge into the night to contemplate what they might do next...

To coin a phrase - You would think, wouldn't you... that politicians might just have enough guts to realise that their world is about enabling our world - not trying to run it for us? But then I've already made the point that it doesn't appear as if anyone is thinking.