Friday 20 January 2012

Making zeebox rock

Anthony Rose's zeebox has much potential - especially when used in conjunction with the "pause" button on PVRs - but it also reveals a paucity of metadata associated with broadcast TV programmes.

It would be great to see broadcasters add such data as a) locations associated with scenes and b) clothes worn by actors. This would no doubt be music to Anthony's ears - as monetizing these data-streams would be a synch.

Tuesday 10 January 2012

I'm a fan of the possibilities

Monday 9 January 2012

A template for executive pay

The issue of fat cat salaries is a live one with the British Prime Minister talking about it on the Andrew Marr show over the weekend.

To give David Cameron and The High Pay Commission a helping hand with the current unfairness of it all, I propose a simple formula for setting the pay of chief executives – one that is both transparent and brings rewards in line with long-term performance.

The idea is to pay a modest basic salary, with the bulk of earnings derived from company stock. So far so normal.

Crucially, though, the shares are handed over to the executive at zero cost in installments over, say, a ten year period.

Complex ‘stock options’ - with the option to buy shares at discounted rates at specific times - are banished.

The best way to describe this formula is with an example.

Let us say the remuneration committee of a large FTSE corporation thinks their CEO should earn about £1m a year – but is happy to pay more if company performance is good and similarly wants a lower salary to apply if performance isn’t up to snuff.

The median wage for workers in the company is £30,000 and the stock price is £10 (on average over the current financial year). The exec is paid a basic salary of £30,000, plus the first of ten installments of 10,000 shares, valued at around £100,000.

A further 10,000 shares are given to the executive as remuneration (for his or her work this year) in each of the following nine years as well.

If the share price falls by half during the course of the following year, then of course the second installment ends up being worth just £50,000. Should the share prices double, the CEO finds their second installment is worth a tasty £200,000.

It’s worth mentioning that the share price has to increase in line with inflation to keep the figures ‘real’ (ie: equivalent to prices now).

Apart from delayed pay, the argument against this formula from CEOs would be that they may leave the company and have no control over some screw up nine years down the line which causes the share price to plummet.

Such nay-saying doesn’t wash for the following two reasons.

1. There would doubtless be some instances of unfairness, but given the large salaries involved one shouldn’t feel too sorry about it. And it cuts both ways. A CEO could equally be rewarded for future growth they weren’t directly responsible for.

2. This template incentivises CEOs to stick around longer and ensure good succession. If they stick around five years and their immediate successor does the same then they have had direct or indirect influence over company performance for the whole ten year period. So it disincentivises jumping ship without adequate succession planning (if a better job offer comes along or whatever). It also disincentivises a CEO jumping ship just before their company hits the rocks.

Over time, executives could generate a performance measure – namely the percentage their ongoing installment-pay is outstripping (or not) the initial baseline.

In summary, remuneration committees needs to get a grip on what top executives should be paid in the first place – as a reasonable multiple of median wage or whatnot - and then issue staggered payment in fixed units of company stock.

Job’s a good-un.