Irreplaceable or what…..?

Pity the poor directors at Easyjet. OK don’t pity them that much as they are well rewarded for what they do. But unlike every other major quoted company they have Sir Stelios Haji-Ioannou on their back. Whether it is about strategic direction, buying new planes, or as in this case executive pay, invariably Sir Stelios has a view and, as a very major shareholder, clearly he has every right to that view.

Presumably this is what Vince Cable has in mind when he set out his plans for the role that shareholders can play in curbing excessive executive pay.  He believes that like Sir Stelios, and all SME business owners, they should be treating the company’s money as their own in terms of monitoring how it is spent. It would be nice if those in government also thought in such terms.

However perhaps the more incendiary part of this story is Sir Stelios’ comment "I know as shareholders we could easily replace them with talented executives and experienced non-executive directors who will cost half as much in bonuses."

Wow! One of the arguments for high executive (or any other) remuneration is that you need to pay it to get the best people. These people are apparently so rare in the global economy that their pay has gone up exponentially over the past couple of decades. Football agents and clubs also use it, although even allowing for massive TV deals, there is absolutely no financial justification for footballers’ salaries at current levels. Now it seems that Sir Stelios has woken up to that old cliché that graveyards are full of indispensable people.

Perhaps it is the vast sums of money involved that makes logic fly out of the window on this. Record labels have almost bankrupted themselves on multi album record deals for artists who they thought were sure fire winners. A salutary reminder that, as far as people are concerned, like investments, the past is not necessarily a guide to the future.

Vast sums sadly are rarely available to SME owners to enable them to keep hold of their key people. They have to find other ways to hold onto them, ranging from share schemes to providing a workplace where people feel they are valued and enjoy working in even if the money is not the best they can get.

Actually the problem is not really that key people are irreplaceable because of course they are. It is more that the process of replacement is a real hassle. Mind you if you are currently having to find someone to replace the irreplaceable, don’t despair. You might end up with someone even better at a lower cost. Well that’s how multi-millionaires like Sir Stelios think…..

All the nasties……?

Oh dear. It seems that one in four small business owners are so depressed by the state of the economy that they want to give it all up and revert back to being salaried employees again. Apparently they have lost their enthusiasm for being the boss and crave the relative stability of working for somebody else.

Yes, frustrations with increasing regulation are being blamed, but I tend to think it is the constant worry about where the cash is coming from to pay suppliers and wages and the efforts involved in trying to win new orders and deal with ever more demanding customers (i.e. the travails of everyday business for which the buck stops with the business owner) that is the real culprit. No wonder eyes are cast enviously towards the idea of a no risk monthly payment into their bank accounts that enables them to leave their work at the office when they go home every evening.  

Make no bones about it many of these business owners did extremely well during the boom years of the last decade. Equally they have had to dig deep into their pockets over the last few years to keep their businesses afloat during the downturn. Therefore their trepidation at the prospect of another year or more of austerity is understandable.

Of course risk free salaried work is also not what it used to be. There is a noticeable increase in the number of job adverts that quote an OTE (On Target Earnings i.e. minimal salary plus commission) figure rather than a fixed salary. Or what were once jobs with a wage, such as van drivers, are now “self-employment” opportunities. The business owners who remain are clearly looking to shift the performance risk back onto their employees, much as many big employers have been shifting their pension risks for a number of years.

It seems that now the good times have well and truly gone and the banks are no longer handing out money without due care and attention, the attractions of running and growing your own business for lots of hassle and uncertain reward are diminishing rapidly.   

This ought to be of real concern to a Government that is relying on the private sector to take up the slack of job creation now the public sector jobs bonanza is over. Therefore it seems an odd time to focus on the excesses of capitalism, as represented by unjustified executive pay, rather than what can be done to really support those brave enough to take on the responsibility of building a business in a financially responsible way.

At its best capitalism provides motivated imaginative individuals with good sustainable business ideas the freedom to get on and create wealth and jobs. We need to be careful that the justifiable attacks on nasty capitalism that are being indulged in at present do not crowd out the benefits that the nice version provides.

The real value of time….

Back to work after yet another holiday weekend. Actually what am I saying? There is no back to work about it as I had to do some work over the holiday weekend. Well that’s what happens when you have your own business and you don’t get paid holidays. You have to make the most of the days that the rest of the country is working to get your billable days in.

April has been a month where maximising income has had to be squeezed into the reduced number of working days within the month. Admin, marketing, business development, CPD etc. has had to be done outside of these days. Such is my life, although please don’t shed any tears for me, as this is what I have chosen to do in order to be able to provide the best value service to clients and the best lifestyle for my family.

It is an ongoing challenge for all time based businesses to maximise income and yet still allow time for the work that needs to be done on the business. Many do have to use “spare time” to catch up. If you are an owner or a partner this effectively means your own time, or more frequently you family’s time.

It can be argued that maximising income does sometimes come at a personal cost. However professional services organisations often fall into the trap of seeing cost in their own terms and not their client’s. They are sometimes so focussed on maximising billings that they forget that this is a cost to their clients, a cost for which the client expects to receive value.

It is therefore important to put yourself in your client’s shoes. How does the work you have been doing look in their eyes? Yes you may have done the time but have you created the value? It is an approach that has served me well and keeps me on my toes when carrying out assignments.

Of course the logical extension of this is employees, especially senior executives, should also start to think in terms of the value that they add rather than the salary and benefits they receive. So many executives negotiate high packages because they believe they are worth it. They are very rarely called to account in the same way external consultants can be over the value they create.

The value mindset is critical for a successful professional, particularly in these challenging times. Regardless of how many hours are worked or billed clients have to be happy with the end result. Something to keep in mind when the next bank holiday comes around perhaps?

Because we’re worth it….

Wayne Rooney negotiates a contract that could earn him in excess of £200,000 a week. FTSE executive pay has increased by 55% in the past year. Eric Pickles berates the local government “gravy train” and is demanding top Public Sector bosses take a pay cut of up to 10%. Throw in the regular comments concerning bankers pay and bonuses and we are once again playing one of Britain’s favourite pastimes, namely a fascination with top people’s pay.

The British have an interesting attitude to high levels of remuneration. We revel in the glamour of high earning superstars and yet frown on anything that smacks of “fat cattery”. This approach tends to glorify celebrities and demonise business people.

The riches that Cheryl Cole, who is moderately attractive and talented, has accumulated do not provoke outrage. The pay and perks of individuals who are responsible for billions of pounds and thousands of jobs seemingly do. And yet it is well run businesses that create the wealth that enables us to indulge these celebrities.

The BA results are a timely reminder of this. Willie Walsh has had to cope with recession, strikes and natural disasters, yet has managed to deliver profits that were double expectations, and negotiate a major merger with Iberia to boot. To do all that has required prodigious talent and deft footwork, which is more than equal to that of Mr Rooney, yet Mr Walsh will be pulling in considerably less than footballer’s salary, and will no doubt get more negative headlines for doing so (Rooney’s negative headlines have been more to do with his negotiating tactics than the final deal).

Maybe it is because people look at the likes of Cole and Rooney and say, yes, with a little more talent and luck that could be me. They can identify with these superstars in way that they cannot with a talented business person.

What does this mean for Enterprise Britain? Entrepreneurs rarely tend to enjoy high salaries. They prefer to make their money on exiting their business, which is arguably a more realistic measure of wealth created. Indeed as the recent IOD report on director pay shows many directors of small and medium sized businesses are sharing their employees’ pain regarding pay freezes and cuts. However they too are tarnished by the anti business feeling that accompanies stories of high executive pay.

Some top executives packages are clearly excessive, unrelated to performance or ability and deserving of criticism. And yet unless we start to really appreciate top business people and stop begrudging them their rewards we are going to struggle to develop the enterprise economy that will provide the jobs and wealth of the future. Particularly those for footballers and pop stars……