Saturday, 3 September 2011

Bonus politics

It seems a bit churlish to not simply say that James Murdoch's decision not to take this year's bonus because of events a NOTW is A Good Thing, but the decision does throw up a few issues that are worth exploring.

For example, Murdoch Jnr's statement makes clear that he was awarded the bonus because he hit his targets. This, I have no doubt, is true but leads to a few further questions. It may also be the case that he was awarded, and took, past bonuses that were in part based on News International's performance whilst the company knew that hacking had been taking place but was still denying it. So he may have been rewarded for his management of a business that apparently misled the public and parliament about it's practices. My point is not that this is ethically wrong, but simply that a business can get away with low standards and stil make a lot of money (and pay big bonuses). In other words simply hitting performance targets is not necessarily in and of itself a good thing.

if Murdoch Jnr hit all his targets then this could suggest a number of other issues to look at. Maybe NOTW wasn't all that important to his performance metrics. This chimes with the line News Corp, and Murdoch Snr, have taken that they couldn't be expected to know about this kind of stuff because it's only a small bit of the empire. Maybe that's true, but then why are they paid as if they have responsibility for the whole lot? It also suggests that a board member of a big media company can shut a profitable national newspaper without it affecting how their performance is judged. That is a bit worrying if you think there are any media owners who indulge in any kind of partisan politics. Ahem...

It also seems a bit odd that the compensation committee didn't exercise a bit of judgment on this one. I mean they must have had an idea of how bad it would look when the news came out. Even the banks were a bit smarter than that. From the outside it slightly suggests a board that doesn't challenge. Finally, doesn't it also suggest that at least some part of incentive pay (if we're sticking with it) ought to be dependent on reputation management? News Corp itself has said that the hacking scandal may impair its ability to do business. Why isn't this potential risk reflected in performance metrics?

Of course to be fair we should state that it's likely that most of the performance for which the bonus was paid occurred before the hacking story broke (early July). But then I go back to the point that this is performance during a period when News International knew quite a bit about the extent of hacking, even by James Murdoch's version of events.

So really we shouldn't expect any less than him notvtaking the bonus, and arguably we should question why his bonus wasn't significantly reduced by the comp committee in the first place.

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