A few months ago I interviewed management expert Henry Mintzberg for Director. As well as plugging a new book, Mintzberg had much to say about the state of modern management. In particular, his parting shot about the stupidity of certain management pay practices came to mind this week, with the announcement by Marks & Spencer of the remuneration for incoming CEO Marc Bolland. Said Mintzberg: "Now CEOs are even getting paid retention bonuses. That means getting paid a bonus for not leaving your job. That's just insane."
He had a point. So what about retention bonuses that still pay out despite the CEO in question jumping ship? Just how insane has the situation become when a CEO can pick up a £7.5m "golden hello" from a new employer to compensate for the loss of this loyalty bonus? This is effectively a "disloyalty bonus" and will be paid by M&S regardless of what Bolland does or doesn't do for M&S, its shareholders, customers and employees.
That Bolland's tenure at Morrisons has been a success was clear from the way markets reacted to his impending transfer. But it's a sobering thought that it's his only significant retail experience. He is seen as an astute businessman and is evidently a persuasive and powerful negotiator. But even if he turns out to be worth every penny of that £15m, the pressure on the rest of the sector will be considerable.
The most commonly quoted argument for paying such astronomical sums is that the market demands it. Stand up against the market and the star performers will go elsewhere. But by setting progressively higher benchmarks, the market—and the argument—risks falling in on itself.
Recent weeks have already seen two high-profile CEOs pick up £15m packages (the other was Adam Crozier at ITV). It's like we've forgotten all lessons that might have been learned from bankers and MPs. While many institutional investors have announced that they are quite happy with both pay deals, it's hard to see them becoming anything but a millstone around these organisations' necks. The first whiff of a slip-up will be eagerly seized upon as a sign that one of the £15m-men isn't up to the task.
A lack of loyalty, dazzlingly large sums of money and a market on the verge of being driven crazy by speculative transfer activity. If that sounds scarily familiar, it's because it's exactly the route Premiership football has taken. And look where that has ended up.