Meg Whitman, who was appointed chief executive of Hewlett-Packard on 22 September 2011, last week announced that she would be drawing a salary of only $1. Her severance package, meanwhile, is just $1.50. Contrast this with outgoing boss Leo Apotheker’s severance package, which is estimated at $13.5m. This is a man who has presided over a fall of 46 per cent – worth about $40bn – in his company’s share value during his 11-month tenure.
Whitman, the onetime chief executive of eBay, joins an elite club of single dollar salarymen: Apple’s Steve Jobs, Google’s Eric Schmidt, Sergey Brin and Larry Page, Oracle’s Larry Ellison, and Cisco Systems’ John Chambers have all at one time worked for a $1 paycheck.
As Vince Cable, the UK business secretary, announces that he wants to tackle the question of bosses’ pay through “a narrowing of inequalities,” might this be a way forward?
Pegging executive remuneration to companies’ performance in a mix of bonuses and share incentives, will, however, only partially provide some correlation between personal gain and corporate effectiveness. There is also a need for transparency and simplicity.
In the worst financial crisis since the 1930s, the average FTSE 100 director has seen his (or her) pay increase by 12 per cent over the past year to £4.37m, according to a report published last month by Manifest, the proxy voting agency, and MM&K, the reward consultancy.
Chief executives’ remuneration has grown by 323 per cent in the past 12 years, catapulting them into a superclass of the ultra-rich. For all the talk of aligning shareholder and management interests, these increases are three times the rate of rises in the FTSE 100 index over the last year, and over the 12 years, FTSE share values have been flat.
Contrast this with the average worker’s salary increases of 4 per cent a year. While in 1999 the average FTSE chief executive took home 47 times the salary of the average full-time employee, that figure is now 88 times.
Most would agree that a growing divergence between the top and bottom of pay scales is becoming unhealthy. The question is how would you construct a reward scheme that reflected performance in both the short and long term?