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 

Workplace learning with coaching and mentoring

In this free course, Workplace learning with coaching and mentoring, you will consider theoretical and practical issues in planning and managing learning and talent development programmes in your organisation. You will also explore ideas about coaching and mentoring; both are prominent learning and development tools in contemporary organisations. You will also learn about how different learning theories and philosophies become concrete in the practical decisions you make about learning and talent development. The course is designed to encourage critical and personal reflection on these practices which will enhance your learning.

Free course
9 hrs
Baffled by the budget? Creative commons image Icon By altogetherfool via Flickr under Creative Commons licence under Creative-Commons license article icon

Money & Business 

Baffled by the budget?

George Osbourne has announced the first Conservative budget in almost 20 years. Are you confused by the lingo? Try our content and get to grips with all things to do with money and the economy here. 

Article
Managing virtual project teams Copyrighted image Icon Copyright: © Rawpixel/iStockphoto.com free course icon Level 3 icon

Money & Business 

Managing virtual project teams

Many projects are now ‘virtual’, i.e. some or all of the team are located remotely and may be working in different time zones. The project manager needs all the traditional soft skills, and more. This free course, Managing virtual project teams, looks at knowledge and techniques which underpin team selection and then consider the additional expertise needed to manage teams in a virtual environment.

Free course
8 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

Money & Business 

Employee engagement

Engagement is a key buzzword in 21st century management. Strategic human resource management rests on the belief that people are the key to achieving competitive advantage. Employees need to be seen as assets to be developed, not costs to be controlled. This free course explores three key themes: employee engagement, employee involvement and collective aspects of employee relations.

Free course
10 hrs
Managing your retirement: your questions answered Creative commons image Icon Stefano Bertolotti | Flickr under Creative-Commons license video icon

Money & Business 

Managing your retirement: your questions answered

Martin Upton sits down with Jonquil Lowe and Janette Rutterford to discuss some of the questions about retirement raised by learners studying Managing My Investments.

Video
MK Dons manager Karl Robinson on leading a winning team Creative commons image Icon The Open University under Creative Commons BY-NC-SA 4.0 license article icon

Money & Business 

MK Dons manager Karl Robinson on leading a winning team

As MK Dons hit the headlines beating Manchester United 4-0, find out what manager Karl Robinson thinks on how empowering your team is a crucial element of creative leadership.

Article
Developing your skills as an HR professional Copyrighted image Icon Copyright: iStock free course icon Level 3 icon

Money & Business 

Developing your skills as an HR professional

This free course, Developing your skills as an HR professional, will help you to develop some of the skills you will need to be effective as an HR professional. You will practise learning reflectively and you will also develop the skills of organising yourself, managing time and stress, and working in teams or groups.

Free course
9 hrs