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I thought it might be useful to summarize the gist of yesterday’s lengthy debate about rewarding our key executives.

In the first place there is the core argument that those who lead a company and who take on the primary challenge to outperform the market should in truth be rewarded well. So far so good. The problem begins as we start to define “lead”, “outperform” and other assorted aspects and in particular as we define “rewarded well”. The trouble is that life is not simple and squared off. It is ragged, shifting and imprecise.

The core argument taken at face value is hard to implement for these reasons – we will need to balance short term and long term time scales for example, we will have to build in scope to account for reasonable and unexpected shifts in the market context.

But, and this is my main “but”, I’m not sure the “core” argument is itself so valid after all – the sting is in the tail – “rewarded well”. Money and the prospect of it tend to distort our values and warp our conscience. It is far too simple to assume that the more the potential reward the greater the incentive to lead and perform in the honest, skillful and robust way we originally expect. Indeed, I would go further – beyond a certain level of reward (and by the way, I think this should be very generous) I would expect the values of even the most ethically robust people to become distorted. This may happen in obvious ways – statistics and accounting conventions may be manipulated, deals become short termist, costs shaved to fit stock market needs and so on. It will also happen I suggest in other insidious ways as the excessively rewarded key people start to believe in their own PR and forget the everyday basics as they revel in charity giving, taking high profile community roles and expanding their own living style. Day by day the wedge of accumulating bank notes will split them from the matter of fact realities of step by step management.

I see this regularly – sometimes as a CEO stops listening to his junior staff, turns away from criticisms and disagreements and becomes secretive. Sometimes of course it spirals completely out of control as with Enron, Tyco and WorldCom.

When I was in New York last week I read a Rutgers survey of the 1500 largest corporations in the US that threw these issues into an interesting light. Many companies have tried to motivate their key staff via stock options. Even that doesn’t work out as one would have expected. The researchers found that, over the last decade, companies dispensing significantly larger than average options to their executives produced decidedly lower total returns to shareholders over the period than those dispensing far lower options.

We must not tolerate poorly thought through and excessive pay levels. And our Non- Executive Directors should see themselves as the company’s insurance policy against any decline in standards or the corruption of the company’s goals and values.

See you next week,