There are two theories about Elon Musk’s latest online poll. One says he was genuinely interested in whether Twitter users think he should step down as chief executive of the social media site. A second says he has already accepted that he’ll have to give up day-to-day management and, in usual attention-seeking style, was creating fake drama around the event. The second idea sounds more plausible.
Musk can surely see – as many shareholders of Tesla have been saying in recent weeks – that there are risks in tying his personal brand so closely to Twitter’s. The job of designing, producing and selling electric vehicles is not made easier if the public face of the car company is also at the centre of storms over who Twitter is banning or unbanning this week. “Customers don’t want their cars to be controversial. They want to be proud as hell to drive them – not embarrassed,” said Gary Black, the managing partner of Future Fund, whose biggest investment is Tesla, last week. Quite.
Another consideration is the amount of Musk’s energy that Twitter is consuming. Having paid $44bn for the business (probably at least twice what it was worth), Musk was always going to play with his new toy for a while but any time-and-motion analysis would suggest that the sooner he gets back to the day job the better. Tesla, even after the 62% plunge in its share price this year, is valued at $475bn (£391bn) and the long-term value of Musk’s 13% stake is what matters most for his long-term wealth.
So, yes, best to recruit a full-time Twitter boss who can bring some managerial blandness to placate the advertisers and staff. Musk’s subsequent tweet that “there is no successor” merely describes the situation today; he hasn’t looked properly.
The happiest people would be Tesla’s other shareholders if Musk decides merely to own, rather than actively run, Twitter. Black suggests the car company’s non-executive directors have been putting the squeeze on Musk to get back to duties at the quoted company. That also sounds plausible. Somebody has to point out the bleedin’ obvious to him: Twitter is a hobby, albeit an expensive one; Tesla is a proper company that should be his priority.
Cap on bankers’ bonuses was always flawed
Those who regard it as a moral outrage that the government wants to remove the cap on bankers’ bonuses should read the Bank of England’s analysis on Monday of how the EU-inspired policy has worked in practice. Short summary: the cap just inflated fixed salaries; and it has probably made banks less safe.
That is because the bonus cap, despite its name, does not constrain what an individual can be paid. Rather, it caps the ratio between the fixed and variable components of a pay packet. A bonus can only be worth 100% of salary or, if the shareholders agree, 200%.
With high-flyers who had previously been offered, say, a 500% bonus, it didn’t require imagination to see what would happen when a mechanical ratio was applied. Fixed pay would be boosted because the individuals would demand it. Virtually from the day the EU introduced its rule, banks invented “role-based allowances” as salary add-ons.
The consultation paper from the Bank’s Prudential Regulation Authority sets out the gritty details of how the system operates today. When the bonus ratio of a “material risk taker” – those covered by cap – gets close to 200%, their fixed pay tends to rise “much faster” than peers’ in the following year. “This suggests that firms are choosing to increase fixed pay to compensate in-scope individuals as a consequence of the bonus cap constraint,” it says.
The regulators call this outcome an “unintended consequence” of the cap, but could equally have said the EU was grossly naive to think bankers would just swallow smaller overall pay packets. In the real world, overall remuneration rates in European investment banking are mostly influenced by what Wall Street pays.
UK regulators opposed the bonus cap in the first place for reasons of financial safety: a bigger contractual bill for salaries leaves less room to preserve capital in a crisis by slashing discretionary bonuses. It was a sound argument at the time, and it remains so. It is why the Bank is right to recommend getting rid of the cap now.
Yes, the optics are terrible because “bankers’ bonuses” is a toxic phrase. But the unfortunate reality is that the EU, having correctly identified that skewed incentives contributed to the 2008 crash, came up with a solution that didn’t tackle the problem. The design of the cap was always flawed.
