The battle to align executive pay with what shareholders, directors and society desire is a little like trying to sculpt a balloon: push down on one part and problems bulge out in another.
Santander’s unsuccessful effort to secure Andrea Orcel, UBS’s investment banking star, as chief executive has held the world of finance in thrall for the past week. It makes clear some of the unintended consequences of deferred bonuses, the current tool of choice for limiting reckless risk-taking and encouraging long-term thinking.
The Spanish bank shied away when it discovered how much it would have to pay Mr Orcel in stock to compensate him for €50m of deferred share-based performance awards and UBS bonds he was leaving behind after seven years at the bank. Having tried to haggle with Mr Orcel’s former employer, Santander concluded the payout was “significantly above the board’s original expectations” and out of tune with the bank’s “values and its responsibilities to its wider stakeholders and the societies in which it operates”.