

BP and golden parachutes

The wages of failure

Despite the howls, Tony Hayward’s departure as boss of BP was deftly handled. And other firms are trying harder not to reward bad leadership

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Readers' comments


Tony Bianco

Fully agree with 123andy. The inclusion of Lee Raymond in the list is at best careless and at worst malevolent. One can quibble whether Raymond's achievements are worth the money he got or not (I personally believe nobody deserves this money) but cannot doubt his achievements, well summarized by the comment. I had the opportunity to watch closely the merge with Mobil (though I don't work for XOM) and it was indeed a model in all dimensions. XOM is widely admired in the industry for its safety record and financial discipline. If we can attribute BP's failure to Hayward (something that is not true, of course--he inherited a basket case), it is hard not to attribute XOM's success to Raymond. One would expect better for The Economist.


People feel sorry for Mr. Hayward, because he got so "little" after he was canned. The truth is probably that he had so much on his shoulders, guiltwise, that he saw no other option.

CEOs should be held accountable to the last penny. The argument that people won't take the job if the rewards are not great enough does not stand. Look at the CEO of Google, who makes something like $300K per year. Sounds fair. He is still there, isn't he? If you earn $8M for being CEO, there is surely someone outthere who can do the job for $4M. So lots of those CEOs are to blame. Most of them get the job by palying the politics game, than by actually being the best person for the job. Look at Nardelli's severance? Who authorized that? Please.

So, boardmembers are highly responsible too. Most of them are complacent individuals who just go along with whatever the Chairman and/or CEO say. The few of them who actually try to hold executives accountable, are removed from the board because they make executives feel "unconfortable". Who would put Chuck Prince in charge of Citigroup, being a lawyer. Or the guy from Pfizer?

Seriously things have to change. If the company does well, executives get a lot of money, as do the shareholders. But if things go wrong, only the shareholders get screwed. There is total asymmetry there. If executives want the upside, then they must be willing to share the downside. If they are not up to it, then change careers. Or go into private companies, if theyll take you.

J. Kemp

The alleged "gaffes" of Mr. Hayward were hardly monumental. These seem well and honestly summarized here:


As gaffes go, these are very far from nightmarish. He was also correct in his assessment that the environmental impact of the disaster was likely to be very, very modest. As technical reports show, the oil spill is rapidly biodegrading. It was known from the get-go that this would occur. It always does.

The lust of the public, the media, and the U.S. Congress for CEO blood and blame placement, and the bad consequences that this ill-motivated lust can have, is the real lesson here.

For example, it is almost certainly the case that the vast majority of the economic damage to businesses and livelihoods in the Gulf Coast area was inflicted not by BP, but by the media who scared tourists away with horribly exaggerated, doomsday reporting. This reminds one of the obscene costs that an irresponsible media similarly inflicted upon the world over the great Y2K computer scare. (Though it is noteworthy that China and some other smartly managed dictatorships did not get caught up as did the West in Y2K fever.)

How to get media to be more responsible is a very big question in the modern world. Perhaps someone can start a company which assesses the accuracy of different journals and papers over time, and helps readers to punish those who sensationalize via cancelled subscriptions. Of course this leaves the problem of finding media companies who don't engage in this dishonest practice to fill the void. Bit of a problem that.

In any event, this "punishment" of the man who had the misfortune to be the CEO of BP should help assure that Britain's large companies will have diminished ability to attract the finest talent for some time to come. Look for even more of the best talent to gravitate to private equity firms, hedge funds and the like.


That is correct.
Which means that as long as we keep differentiating companies as "too big to fail" and the rest, we need to take the same differentiated approach towards the executive pay.
This is a logical alternative, but - of course - not the first best.


Memnon, I completely agree. In both cases the public should not be involved. I can understand the public interest where bailouts have occurred. So far, though, it's only a few industries that have been nationalised, er, bailed out.


Come on now. With the majority of American citizens making under $50K per year I am sure that any multi-millionaire can manage their assets to not be "destroyed" by being fired for failure. Seriously, if I was fired from my job today I would not have millions of dollars to keep me off of the street. My family and I would be eating ramen for dinner and taking the bus. We all take risks in our lives and most of us have to pay dearly for failure. These large corporate bosses should pay dearly for doing things like running companies into the ground or say, ineffectively managing a major catastrophe that will cause serious hardship to thousands, if not millions of people for many years to come. They should be destroyed, that is why it is called "high risk".


"Whether competitive or excessive, executive compensation is solely the business of the shareholders and the Board. "Public debate" on this issue is just noise."

Well, not until the public is asked to bail their companies out every time they screw it up.


"This is unfair. Mr Hayward has worked at BP for 28 years, most of them successful. At least half of his pension pot was earned before he became chief executive."

... However, in his final months with the company he wiped out ~10 times (or perhaps ~1000 times?) as much shareholder value as he created in his previous 28 years with the company



BraveSirRobin, clearly the worth of these executives is not "hogwash", since presumably sober adults have in fact engaged in real transactions with those terms. This means the market value is self-evident. I didn't say "right" or "wrong". Don't worry, the market will correct in time.


"Whoever did take it would surely manage in a way that minimised the risk of catastrophic failure."

Minimizing risk of catastrophic failure is not the same as taking no risk.
How smart, TE!

"That sounds peachy until you remember that capitalism depends on risk-taking."

Taking risks with other people's money - is that what you mean?

Fossil American

Now that the one who made the second biggest blunder is gone, when will the one who made the biggest blunder resign?

Well? Mr. Obama, we are awaiting your resignation and apology for your inaction and mishandling.

While some rigs are gone for good (one moved to Congo "due to political instability in the USA"), some are still here yet. Come now, you will have a lot more time for vacation and golf.


It seems odd to me that The Economist as well as many in the corporate world see man as a rational economic animal everywhere except the executive suite. Why exactly would it be a bad idea to have executives take a view of risk that has a direct relationship to reality instead of distorting it to make it more risk tolerant?


Sadly, the only lasting & sorry image that stays on my mind is that of the "greedy, grasping American, feverishly latching onto the 'victim bandwaggon' & trying to squeeze the last drop of blood from their victim, scapegoat & fall guy: (non-American) BP."

Looks like we never eveolved from the Dark Ages. The laws of the dog-eat-dog concrete jungle prevails, as always.



The problem is not Tony Hayward (I am not defending or supporting him); it is about the culture of exploitation and profit-making, which makes companies to ignore or (be) careless about security and safety standards. It is a much wider issue.

You would think that after such disasters as ExxonMobil, etc., companies would learn. They haven't. Look at car recalls, food recalls, blood diamonds, or importing cheap and dangerous goods from countries with virtually no standards at all. Why? The goods are very cheap, and these companies can make huge profits (selling to us) at our expense. And our governments, well as long as the politicians keep their jobs, no one will enforce any standards, or they just appear to enforce the regulations.
This will only end when citizens are aware of their rights.


Of course Tony Hayward WAS in effect the boss of an American firm; but he was fairly cheap to dispose of because he personally was British (like so many of the baddies in US movies!). What deal has his US successor managed to negotiate?


The problem with defending golden parachutes is that Americans see their friends and neighbors losing their jobs through no fault of their own left and right and after paying taxes for years getting cut off of a paltry survival sum by Congressional inaction. Then these executives, some of whom are in no small part responsible for the employment carnage we see today fail at their jobs and get sent off with inconceivable amounts of money.

This ballooning in executive pay over the past years has been justified by explaining that these particular people are worth it, and to that I call hogwash. Even the complete failures, of which Heyward is by no means the worst, get insane compensation. There is nothing special about these people yet they are being compensated as if they are wizards. Give me a couple of years of in house experience and I could run a profitable oil company and would be happy to do it for less than $400m. If you look at the workforce in America you see our doctors, our scientists, and our other elite minds making good money for sure but nothing like what even junior executives make. Corporations are run by cabals of talented but by not necessarily any more exceptional people that instead of taking salaries consistent with their abilities and actual value to their organization collude to divide vast sums of money from their corporation that should be invested or paid in dividends under the pretext that because they happen to be business executives are worth millions and millions of dollars. It's a vicious positive feedback loop of self-interest. If the boards had any integrity and weren't entangled in the same system they would control executive compensation. In any company as large as BP there will be mile long line of capable candidates; these people are not indispensable. Heyward's package should be at the top of a list like this, not the bottom. It is generous but not obscene.


America is a funny country. Never mind if it is Toyota or BP their politicians seem to mentally stuck in the time that they were in kindergarten. In non banana republics judgement is passed after all facts are known, investigated and due process is followed. Foreign companies are easy targets in the US. We really do not yet know if Halliburton or any other american company shares to blame or is to blame. If a person works 28 years in a company he is simply entitled to certain perks, which have nothing to do with rewarding failing leadership. If there is failing leadership it is in the american political arena, with very immature people shouting "Drill Baby Drill". When I watched the news I did not see one of those politicians taking any responsibility. But wait, they are American and elected so they can change their position any which moment they like.

Chandran Nair

I am an Indian who was an employee of BP refinery Aden during 1955-'63. I did the job of a chemist (shift in charge for the most part), was a post graduate at 23 years of age, stuck at the designation, asst. Lab technician throughout. My equally qualified colleagues and I were paid one tenth compared to those of British nationality doing equivalent work, ( but with designation 'chemist', perhaps); we were accommodated four each to one barely furnished house with not even one window A/C,while British expats had a studio suite each, central A/C, with full fledged mess and club, we were entitled to leave with ticket once in two years, whereas British expats had it twice every year, etc, etc. The Refinery investment had been paid off in less than five years. In the '70's, working for IndianOil, I visited the same refinery, (nationalised and run by locals) as an honoured guest on business, when I got my facts right. Later, I had the privilege of being an adviser to a rich oil producing company of the middle east, and knew the difference even better, I thought of these while reading the highbrow discussions going on regarding the figures of 900,000 and 1.6 million. I am only stating the fact, not complaining, I humbly admit I needed whatever BP gave me, and it was really a lot of help.


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