CEO and senior executive pay and rewards for (exceptional? outstanding?) performance.

Friday, Aug 05 2016 by

Investors Chronicle has just published this article on Weir (LON:WEIR) and the "travails" (perhaps) of its CEO, Keith Cochrane.

This is a business working in sectors which are highly cyclical. The thrust of the article is that it has been hard on the CEO to see his total pay reduced by three-quarters as a result of his bonuses and options, from £4.73m in 2011 to £1.065m last year and this despite all the best efforts of their remuneration committee. The chair of this committee is quoted thus:

" As Melanie Gee puts it in Weir's annual report, the remuneration committee, which she chairs, is struggling to set realistic targets for both the annual bonus and current performance share awards, given “the unprecedented end-market environment for both our Oil & Gas and Minerals divisions”.

I find the article interesting as a forerunner of the kind of arguments that will be put up against any proposals to make binding the results of shareholder votes on executive pay packages and executive performance reward schemes.

I also find the title of the article, "Weir not in this together" very apt (sadly). The thrust seems to be all about rewarding executive management, even when shareholders have seen the value of their investments nosedive. The share price of Weir (LON:WEIR) is down something like 22% over the last five years and over 40% from its peak in 2014.

Again sadly, Weir (LON:WEIR) is by no means the worst example of executive greed (my word, my view on it), we all know that.

Let's look forward to the promised proposals from the new government.

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The Weir Group PLC is a United Kingdom-based company, which is engaged in engineering businesses. The Company's business operates through three segments: Minerals, ESCO, and Oil & Gas. The Minerals segment is engaged in the provision of slurry handling equipment and associated aftermarket support for abrasive high wear applications used in the mining and oil sands markets. The Oil & Gas segment provides products and service solutions to upstream, production, transportation, refining and related industries. The ESCO segment provides ground engaging tools (GET) for surface mining and infrastructure. It also provides engineered GET solutions to infrastructure markets, including construction, dredging and sand and aggregates. Its products include pressure pumping and pressure control equipment, and aftermarket spares and services. It also provides equipment repairs, upgrades, certification and asset management and field services. Its brands include Warman, Linatex, Mathena and Gabbioneta. more »

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4 Posts on this Thread show/hide all

shipoffrogs 5th Aug '16 1 of 4

Isn't the logical answer - no performance based reward as clearly the main determinant of profits is the economic cycle which the Board cannot influence.

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janebolacha 5th Aug '16 2 of 4

In reply to post #145680

No, I think there ought to be performance-based rewards but that they ought to be rewards set to performance criteria and targets within the scope of action and the scope for achievement of the executive or executives or the executive team concerned. It is too simplistic to set trigger points according to share price movements which can be influenced by many factors extraneous to the company itself. The example of Weir (LON:WEIR) demonstrates how effectively linking the CEO's pay and rewards to share price performance has, arguably, led to him being overpaid in earlier years when a buoyant oil price led to a boom for equipment suppliers such as Weir but now, in a very different scenario, leaves the CEO and his team feeling they are badly done by. I don't see that as being a recipe for success in any company. However, more individual or group rewards based on factors such as internal investment returns, productivity improvements, turnover of working capital, market share or whatever may be most appropriate to the particular company and its situation, (edit: that is, in actually building a better business) would seem to me to be likely to produce a desirable win-win-win scenario for the executives involved, for the company and for its shareholders. I do appreciate that setting up more individual or team rewards would take more time and thought than the simple schemes based solely around the share price but, imo, the rewards would be greater and this approach would perhaps not leave one or both parties simply feeling aggrieved.

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shipoffrogs 5th Aug '16 3 of 4

my reply was slightly tongue in cheek, but I doubt they worried too much about external influences when they were favourable. So, why do so now?

People lower down the food chain don't just lose their bonuses when the cycle turns down, many lose their jobs.

I hadn't appreciated that the bonuses were tied in to share price performance - that's just dumb. They should be based on factors that management and boards can influence within their companies . They can't influence market sentiment.

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biloseli 5th Aug '16 4 of 4

It's said you get what you measure. Given the wrong incentives, directors start managing the share price instead of the company. Better to manage the company well - the share price will follow.

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