Afternoon:
10°c
For a few days now, there has been a gathering sense in the stock market that we are close to the bottom, with the worst of the shocks behind us. Who knows whether that is right or not? What we do know is that all eyes today are on Marks & Spencer. The way the market reacts to its figures will give an interesting guide as to whether or not sentiment is on the turn.
If the market wants an excuse to fall, the results give reason enough - profits in clothing and food continue their decline. But if the market is genuinely trying to build a base to go forward, it will focus on the fact that things no longer look as if they are falling off a cliff. The rate of decline in clothing and food is much less than in previous quarters. The business is becoming more stable, and the results are probably rather better than analysts expected.
This improvement may be enough to spike the guns of those investors who thought another round of bad figures could be used to lever Sir Stuart Rose out of his position as chairman and chief executive, or at the very least to force him to accept a deadline in both jobs of July 2010.
Instead the board should have the courage to stick to its original timetable of a year later to give the internal candidates for the chief executive's job a proper period in which to show what they can do. Foreshortening that process now would be unfair on those people, make a nonsense of the succession planning and shred the credibility of the board.
Sir Fred got lucky with bonuses too
Just as media attention has switched to the spouses of Government ministers watching porn films on expenses and other matters of supreme national importance, a fascinating snippet of research into Sir Fred Goodwin's bonus scheme has been produced by Cass Business School.
It deserves a wider audience because it shows the scheme was so poorly designed that Sir Fred could have collected a significant proportion of his vast sums by pure luck. The key fact is that a major part of his performance bonus came from doing better than other banks in terms of total shareholder return.
Professor Keith Cuthbertson looks at the probability of Sir Fred getting his award "for exceptional performance" by doing nothing other than relying on luck. He says: "Under quite benign assumptions about the volatility of total shareholder return we find that the chance of Sir Fred receiving a 125% bonus purely due to luck is around 30%. Even if Sir Fred has less skill than his competitor bankers and is truly only capable of delivering a long-run average TSR which is 6% worse than his competitors' over three years, his chance of receiving the 125% bonus purely due to luck is still around 20%."
As the professor points out, these are not bad odds for such a large payout when you have substantially less skill than your competitors. His point is a serious one. Too many bonus schemes are very poorly designed and in essence pay vast amounts of money to executives who have done little or nothing out of the ordinary to justify them.
There are some good guys among the remuneration consultants but too often those who get the plum jobs are cronies of the chairman or chief executive and are appointed on his recommendation to advise the supposedly independent remuneration committee of the board.
Accordingly, the consultants know what they have to do and what answers they are expected to come up with, and they rarely fail to oblige. If we are to salvage something worthwhile from this mess, the current revulsion against bonuses ought to be used either to get rid of them all together or at the very least to make their calculation intellectually and mathematically robust.
Returning to where we came in, one reason so many MPs seem to be taking all the money they can is that their salaries are far too low given what they have to do and the costs of having a constituency home, having also to live in London and to travel between the two. It seems to me the solution would be to pay MPs a sensible rate for the job - say £150,000 a year, not the current £60,000 or so. And don't give them expenses.
That way there would be nothing for them to fiddle - and the pool of people willing to try to become MPs might deepen too.
