Rewarding failure

Updated Monday 29th April 2013

When bankers get a hundred times more than the average private sector worker’s pension, what kind of signal does that send? 

Have views on this? Make sure you head over to our Discussion Hub to share them. 

Sir James Crosby – the ex-boss of the failed bank, HBOS, who has just been censured by a Parliamentary committee, and has resigned his City roles - has been revealed to be receiving a pension of £700,000 a year, a hundred times more than the average private sector worker’s pension.  

This reveals how executive pay sends entirely the wrong signals as to how to run a bank.

On the upside, there are short term and long term share options or share schemes as well as the substantial salary. And if you lose your job, you still get the pension. So, why on earth not take risks with shareholders’ – and in this case – taxpayer’s money?  

The incentive is to take as much risk as possible to score the jackpot – for example Fred Goodwin’s £10 million bonus for acquiring ABN-Amro bank which brought RBS to its knees, knowing that failure will be rewarded not quite as handsomely but for much, much longer.  

Life expectancy for senior executives, whose stress levels are presumably reduced by knowing that they and their loved ones are always going to be financially secure, is much higher than the national average.

This has been going on since the days of Lord Hanson and so why is this still allowed to happen? The answer is that pension contributions are tax efficient up to a point – it would be interesting to know if Sir James Crosby actually contributed to his pension pot and how much tax HBOS paid on his behalf.  

Companies do not have to fully disclose how much they pay for their senior executives to received these gigantic pensions. And, since it is often the case that middle-aged executives move firm to become chairman or chief executive, it costs the companies concerned a fortune to make up the pot for say 10 years’ service but potentially 40 or more years of retirement.

And why, might we ask, are the terms more generous for senior executives than for their employees?  How many companies are offering final salary or even average salary pensions to employees?  Most have been switched to defined contribution schemes. Senior executives often have a separate scheme or special entitlements. Why should this be so?

Pensions are often called deferred remuneration. Do all the remuneration committees filled with senior executives awarding each other generous salary, bonus and share incentive schemes also take the pension into account?  No, that is the added sweetener which has been, until now, a well kept secret.

Have views on this? Make sure you head over to our Discussion Hub to share them. 

 

For further information, take a look at our frequently asked questions which may give you the support you need.

Have a question?

Other content you may like

Guide to diagrams Creative commons image Icon The Open University under Creative Commons BY-NC-SA 4.0 license activity icon

Money & Business 

Guide to diagrams

Diagrams allow us to think in new ways and approach problems differently. Learn five invaluable diagramming techniques with this video series and quiz

Activity

Money & Business 

Technology, innovation and management

Develop a critical understanding of technological innovation and management. This free course, Technology, innovation and management, will provide you with an overview and introduction to a range of related concepts, ideas and debates. It adopts a broad definition of innovation and subscribes to the view that a fundamental feature of any innovation process is that it results in gaining value.

Free course
10 hrs
The role of the manager Copyrighted image Icon Copyright: iStock free course icon Level 1 icon

Money & Business 

The role of the manager

This free course, The role of the manager, examines the manager role in theory and in practice. You will begin by considering two classic theories on the role of the manager, written about in The Manager's Good Study Guide, to assess how relevant they are for your current work. You will then be asked to examine the work of managers in a range of other organisations using video excerpts from the BBC World News series Escape from the Boardroom.

Free course
4 hrs
Take part in the wardrobe audit Copyrighted image Icon Copyright: Farang | Dreamstime.com activity icon

Money & Business 

Take part in the wardrobe audit

Understand more about clothing ownership and how this behaviour can be changed by taking part in our interactive wardrobe audit.

Activity
Rural entrepreneurship in Scotland free course icon Level 1 icon

Money & Business 

Rural entrepreneurship in Scotland

This free course, Rural entrepreneurship in Scotland, is an introduction to rural enterprise in Scotland. It is principally designed for those developing their own enterprises and also as a resource for people supporting enterprises in rural areas. It has been developed specifically for a Scottish context, linking to Scottish support websites, but it would also be suitable as a resource for enterprising people in any context. It is a series of resources that you can draw on and use as when you need them something to support you on your journey to running your own business.

Free course
30 hrs
Libor rigging Copyrighted image Icon Copyright: Quixoticsnd | Dreamstime.com article icon

Money & Business 

Libor rigging

What are Libor rates and why do they matter to us?

Article
Business Thinkers activity icon

Money & Business 

Business Thinkers

Join the dots of the business world to discover how influential thinkers in business are connected with our Business Thinkers interactive

Activity
The Quarterly Survey of Small Business in Britain - Competing in the EU Creative commons image Icon Raw Pixel Images | Dreamstime.com under Creative-Commons license article icon

Money & Business 

The Quarterly Survey of Small Business in Britain - Competing in the EU

Dr Richard Blundel introduces the latest survey findings of the Quarterly Survey, focusing on small and medium-sized businesses competing in national and international markets.  

Article
Taking part in the voluntary sector video icon

Money & Business 

Taking part in the voluntary sector

This course is for people who are interested in being involved or progressing in the voluntary sector.

Video