Valuing executives. Board, executives and their remuneration consultant puppets have been facing a quandary in recent times. That is, how to maintain skyrocketing CEO salaries in a period where the value of executives’ equity instruments are falling, rather than rising in value. There seems to be little talk of actually scaling back rampant executive remuneration, which seems to rise, regardless of company or economic performance. Fortune’s Geoff Colvin noted as much with regard to US remuneration:

Over the past 25 years CEO pay has risen regardless of the economic or political climate. It rises faster than corporate profits, economic growth, or average workforce compensation. A recent study by the compensation consulting firm DolmatConnell & Partners found that CEO pay in the companies of the Dow Jones industrials increased at a blowout 15.1% annual rate over the past decade.

Colvin then suggested (as Crikey has in the past) that executive remuneration should be share based (rather than option based) and locked up for a significant period, such that:

CEOs [should] own a lot of company stock. If the stock is given to the boss, his salary and bonus should be docked to reflect its value. As for bonuses, they should be based on improving a company’s cash earnings relative to its cost of capital, not to more easily manipulated measures like earnings per share. They should not be capped, but they should be banked – unavailable to the CEO for some period of years – to prevent short-term gaming.

The greatest examples of remuneration gone wild can usually be found in the poorest performing companies. MFS, which announced write-downs approaching $1 billion last week and may not even be a going concern, paid CEO Michael King, more than $3 million in 2007. Former ANZ boss, the feng-shui loving John McFarlane, who was at the help of the bank when it made its disastrous forays into Opes Prime, Lift Capital, Centro bond-insurer ANA collected $7.2 million in 2005 and also in 2006. Phil Green at Babcock & Brown took home $22 million last year as his company’s share price fell by more than 50 percent while Australia’s favourite import, Sol Trujillo, earned $11 million last year despite Telstra’s share price being lower now than when he arrived. As usual, Warren Buffett expressed it best, when he noted:

Too often, executive compensation in the U.S. is ridiculously out of line with performance. That won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay. The upshot is that a mediocre-or-worse CEO – aided by his handpicked VP of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs of money from an ill-designed compensation arrangement.

Directors have been able to rely on ever-increasing share prices fuelled by a bull market to vindicate skyrocketing executive salaries – with the share market down by more than 15 percent from its peak, it may be time to come up with a different excuse. — Adam Schwab

Rio looks to Africa. The BHP camp are likely to have found the latest revelations from Paul Skinner depressing (Rio Tinto’s reservations revealed, April 30) but they will be buoyed by the fact that the share market is now pricing Rio Tinto at a significant discount to the BHP bid price, which enhances their case. When delivering his message to BHP via Business Spectator the Rio Tinto chairman Skinner covered a lot of ground. For example I asked Skinner that, in the event that the BHP bid does not succeed, whether either Rio Tinto or BHP or both were then be likely to be controlled by the Chinese. Skinner responded: “This is a very important question and it’s a very important set of issues for companies like us and countries like Australia. I actually think that the Australian government’s reaction to this thus far, has been very thoughtful and well judged.” — Robert Gottliebsen, Business Spectator

Bernanke’s bind. THE spirit of St Augustine hovered over the Federal Reserve this week. “Oh Lord, let us stop cutting interest rates, but not yet,” is pretty much what America’s central bankers decided on Wednesday April 30th. The Fed’s governors cut their policy rate by another quarter-point, to 2%. But the accompanying statement gave a small hint that they may now pause. There are plenty of reasons to stop cutting. Real interest rates are now firmly negative. Although the housing market continues to contract, the economy is limping rather than slumping. According to initial GDP estimates released on Wednesday, output grew at an annualised rate of 0.6% in the first three months of the year—the same pace as in the previous quarter and faster than most people expected. The mix of growth was not good. Final sales fell while firms built up their stocks, which bodes ill for future output. But with tax-rebate cheques arriving in the mail, a dose of fiscal stimulus is imminent. — The Economist

Apple in downloads deal with big studios. Apple has struck a deal with Warner Brothers and other big film studios to sell film downloads through iTunes on the same day that titles are released on DVD. The move marks the latest step in a revamp of Apple’s film download strategy. This year the company said it would begin offering film rentals over iTunes after Steve Jobs, chief executive, admitted its paid download strategy had not worked as well as had been hoped. The inclusion of Warner, which has the biggest film library in Hollywood, significantly bolsters the video content available to buy on iTunes. — Kevin Allison & Matthew Garrahan, Financial Times