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a personal view from Erithacus
27th September 2003
Other UK stock market indexes fared little better. The Techmark, despite coming close to breaking through the 1,000 "barrier" twice this month, ended the week down at 905.36, and the FTSE Allshare index managed only to just climb off its lowest point on Friday to close at 2,057.18 even though it had managed to rise well over 2,100 during the week.
Across the Atlantic stock markets performed even worse. The Nasdaq Composite index produced its largest weekly fall for over a year, finishing at 1,792.07, The Dow Jones index ended on 9,313.08 with now little hope of hitting the 10,000 that some traders had predicted was within its sights just two weeks ago.
Analysts blamed poor consumer confidence figures in the U.S. combined with nervousness about economic recovery for much of the falls, but pointed to the rises in tech stocks since March which had raced upwards much higher than the rest of the markets. Traders also commented that profit-taking after recent rises had dented prices, and some were predicting that this would continue into next week at the very least. Few, however, were prepared to predict whether share prices would generally have moved up or down by the end of next week, but most seemed to believe the general trend would remain upwards between now and the end of the year.
So what is it all about? Is it really that companies are paying their executives too much - and giving them ridiculously large severance payments when they leave at the same time as the company is not doing particularly well and shareholders have seen the share values fall? Is it, as some suggest, that "big business" does actually work on the "old boy principle", making sure that top executives walk away with vast amounts of money whether or not they have done a good job?
I am not convinced. In fact, I am fairly sure we are heading for nothing short of national commercial suicide if we continue on this particular track.
There are always exceptions, of course, but the top executives of publicly quoted companies as well as the larger unquoted mutuals are (usually) actually human. They make mistakes; and, more to the point, they may frequently be in a position where the organisation or division they run will perform less than perfectly for reasons totally outside their control. Even their "mistakes" are often only a case of having made the best possible decision on the information available at the time, and only in hindsight does that decision turn out to be the wrong one.
As with any group of people there will always be a few "rotten apples" - those who will deliberately abuse the system and take financial advantage of their position without giving anything in return. These are, however, the minority. The vast majority are, I am sure, doing their absolute best for their company and for their shareholders.
So are they overpaid? Is their employment package often unrealistically high, particularly in cases where they fail to deliver the profits and rising company share price expected from them?
I think not. If you want the best then quite simply you have to pay top rates. The packages enjoyed by top UK executives are not out of line with the sort of salaries and conditions elsewhere. More importantly, perhaps, the salaries remain similar to the sort of money that these sort of people might be able to earn if they chose, for example, to be involved in much smaller businesses which they own themselves.
We need to pay this sort of money if we want the right sort of person, otherwise they will simply go elsewhere or do something different.
Similarly, they require and deserve a severance package that relates to their level of salary if and when something goes wrong and it becomes time for them to move on.
And if we put a stop to high salaries and high severance payments?
Pay peanuts, get monkeys.
Occasionally, and very occasionally, there is a chance we will get a monkey anyway. But that is the nature of the game, and although the media may take delight in highlighting the simian-like qualities of a few of our ex-captains of industry, we must surely realise that ultimately it is enabling them to line their own pockets that gives them the incentive and motivation to help us, the shareholders, to line ours.
Rachel, so we are told, is scared of toilets.
We really wanted to know that.
Or perhaps the strangest is the revelation that United States spies are watching whisky production on the Scottish island of Islay. Apparently it is completely true - the U.S. Defence Threat Reduction Agency claims that the process of making whisky is similar to the process of making weapons of mass destruction.
Clearly the threat of weapons of mass destruction being made at the whisky distillery is being taken very seriously - the Agency e-mailed the Bruichladdich Distillery on Islay to tell them that one of their webcams was not working properly:http://www.bruichladdich.com/web_cam.htm
27th September 2003
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