The exiting BP Chief Executive Tony Hayward has become rich as a time-serving employee, working his way up a huge corporation over three decades, profiting from the brand and infrastructure of a company that was created three years before he was born. Then he was made a scapegoat for an oil spill from one of the company's several thousand wells, a well he had probably never visited and maybe never knew existed.
Such is the life of a chief executive of a large corporation. The eulogies and vilifications are flip sides of the same coin, and are founded on the misconception that the chief executive of a longstanding global company with tens of thousands of employees, hundreds of senior managers and an army of expensive external consultants, has anywhere near the dramatic impact we are led to believe.
The myth of CEO (chief executive) omnipotence and its twin misconception, the myth of rare executive talent, cost us dear and must be challenged vigorously and urgently. It is, after all, the population at large which owns large public companies through pensions, savings and other investments, and therefore has to pay for the exorbitant salaries that are a direct consequence of these myths.
However, these expensive myths will continue to be stoutly defended by a number of vested interests, such as remuneration consultants, headhunters and the institutional shareholders who invest in public companies on our behalf, and whose senior executives also owe their wealth to the exact same fallacies.
The principal beneficiaries of the status quo are of course the CEOs themselves, together with those corporate hopefuls who aspire to be CEOs in the future. These myths secure life-transforming and life-long wealth for them if and when they get to the top. After all, in a market where the supply of a given entity is deemed to be scarce and precious, its price (in this case, its salary) inevitably rises.
Moreover, as these CEOs are in such a powerful negotiating position before they assume responsibilities, they can guarantee through contractual obligations that their sky-high compensation, in the form of golden handshakes and pension entitlements, will continue even if their term in office is deemed a failure.
Thus, the heavily criticised Hayward picks up around $1.6 million on his way out, with a promised pension pot reportedly in excess of $16 million, ensuring an annual retirement windfall of around $1 million that will keep him in the lap of luxury for many years. Many years, no doubt, in which several future BP chief executives will become seriously wealthy by managing to beat thousands of equally qualified candidates to find themselves at the top of a massive company, only to then wield insignificant impact on its performance.
Hayward had two full years as chief executive of BP -- 2008 and 2009. In those two years, he received around $11 million in salary, cash bonus and share awards. The board defended both annual payouts on the basis that Hayward had boosted "operational performance", despite the company performing worse than its competitors in terms of total shareholder return in 2008, and reporting a 45 percent profit fall in 2009.
Besides, in an industry where investments traditionally take a long time to bear fruit, it is hard to accept that Hayward himself could be held personally responsible for any alleged improvements. Under his leadership, the company adopted cost-cutting measures throughout the organisation, similar to those overseen by countless chief executives, past and present. No rare talent necessary there, just bog-standard corporate administration.
After the spill, he made several notorious gaffes, such as saying he wanted "his life back" after eleven people had lost theirs due to the initial accident, and thousands more lost their livelihoods as a consequence. One of the key attributes of any leader of a large organisation must be diplomacy, to say the right thing as the figurehead. Tact is a trait possessed by numerous people, for example by seasoned foreign diplomats and PR consultants earning a relative pittance. So why have all those millions come out of our pockets and been given to Tony Hayward?
We need to draw broader lessons from the Tony Hayward saga. It's not just the money that is being unjustly taken from the population as a result of the myths surrounding executives. What signal does it send to society when corporate leaders become hugely wealthy without themselves taking on any personal risk or creating anything new? What damage does that message do to innovation and entrepreneurship? Why not forget about setting up that business, and just try to become another corporate leader, exploiting and suffering from external events, and becoming rich, no matter what?
David Bolchover's latest book is Pay Check: Are Top Earners Really Worth It?