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Mervyn King’s rejection of a £100,000 pay rise merits applause. Towers Perrin, a consultancy, had recommended the Bank of England governor receive a salary of £375,000-£400,000, up from about £290,000. Yet how it reached this number is unclear. European Central Bank President Jean-Claude Trichet and Federal Reserve chairman Ben Bernanke, who both have greater responsibilities, make considerably less, at €345,252 and $191,300, respectively. With Tuesday’s UK inflation numbers showing prices rising at 3.8 per cent year-on-year in June, the highest rate in 11 years, a monster pay rise would have sent the wrong signal to wage setters across the UK. The governor cannot be held responsible for inflation imported through rising food and oil prices, or even for the collapse of Northern Rock, given that the Bank was stripped of its financial oversight powers. But the last year has hardly been a triumph. Mr King’s caution is sensible and highlights how rarely chief executives demonstrate such tasteful self-denial.
Rewards for failure remain the single greatest weakness of corporate governance regimes in developed economies. Pay is all too often ludicrously out of step with performance, extravagantly inflated and layered with complexity by self-serving boards. Pliable outside advisers (“Ratchet, Ratchet and Bingo”, as Warren Buffett dubs them) are often called in to provide little more than spurious validation for greed that can verge on kleptocracy. Make no mistake, Lex admires wealth creation. To become rich is glorious, as Deng Xiaoping said. But executive remuneration must be better monitored. When value is being flagrantly destroyed, lavish compensation packages demand explanation. To do its bit to rein in egregious excesses, Lex will name and shame the chief executives who offer the worst value for money, the least bang per buck. Suggestions for shortlistable candidates for Lex’s first quarterly Overpaid CEO Award should be e-mailed to email@example.com or posted on the Lex discussion board at www.ft.com/overpaidceos
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