Compensation and Cost Cutting: An Example of the BP Company

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This form of compensation encourages and is encouraged by the “glorification of self-interest” or the “selfish syndrome” (Mintzberg, Simons & Basu, 2002, p. 67). Mintzberg et al. (2002) criticize Jensen and Meckling’s (1976) narrow view of economic man or homo-economicus, where everyone and everything has a price and corporations exist to maximize shareholder value achieved ostensibly by the ‘CEO as hero’. This pervasive “glorification of self-interest” and ‘CEO as hero’ are examples of extreme individualism that have resulted in senior executive pay and conditions exploding since the 1990’s, which continues today even after recent asset bubble crashes have left a trail of economic and social devastation (Boyer, 2005; Stiglitz, 2010).
Senior executives effectively pay themselves through lucrative compensation contracts, supposedly linked to company performance, negotiated with compliant or passive boards that abound with conflicts of interest. In effect, wealthy and powerful corporate elites are able to arrange their compensation with minimum external oversight or transparency that effectively firewalls senior management from an organisation’s internal labour norms and values at the expense of the workers (Sikka, 2008). Rather than performance, evidence indicates that the increase in senior executive pay is linked to increasing the firm size, even when the firm’s market value is reduced which “could explain some of the vast amount of inefficient expenditures of corporate resources on diversification programs that have created large conglomerate organizations …” (Baker, Jensen & Murphy, 1998, p. 609).
BP was no exception and achieved its conglomerate status when the then CEO Lord Browne financially engineered massive takeovers a...

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...her BP had not effectively shown that it held supervisors, senior executives, and line managers accountable for safety performance across its five US refineries. The report pointed out other weaknesses with BP’s safety performance, in contrast to the portrayal in its sustainability reports of a company genuinely committed to the safety of its workforce.
BP should form a board that is responsible for the direction and oversight of BP on behalf of shareholders; it is accountable to them, for all aspects of BP’s business. The board should sets the tone from the top, and establish a set of board governance principles, which should delegate management authority to the group chief executive (GCE) within defined limits. These include a requirement that the GCE will not engage in any activity without regard to environmental, safety and health consequence.
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