Thomas Cook's annual report shows what's wrong with bosses' pay. The PM's reforms won't change it

Thomas Cook's annual report provides a handy example of what is wrong with the way companies construct pay pacakges for their chief executives.

The raw figures appear to show that boss Peter Fankhauser took a big pay cut over the last year, pocketing £1.2m against £4.3m for the 2015 reporting year. Well, the share price has been on the slide after all.

But the cut wasn’t about the share price. The previous year’s number had, in reality, been artificially flattered by releases from some of the company’s innumerable share schemes from previous years, as opposed to anything he did in 2015. Or anything he didn't do this year.

Future outings from those look set to be even more generous.

For a start Mr Fankhauser got a 2 per cent pay rise. Modest enough, you might think. Except that he also has a bonus scheme which pays out up to 150 per cent of his basic, plus another of those share schemes that pays out 165 per cent. Each of those schemes also increased by 2 per cent. So the rise is better than it looks. Much better than for the average Thomas Cook employee

Mr Fankhauser’s friends on the remuneration committee also altered the assessment of his annual bonus, which he gets a big chunk off for doing no more than keeping things ticking over. They decided to consider the company's financial performance on the basis that the terror attack in Sousse, Tunisia, in 2015, that caused the company to pull out of the market at a cost of £22m, never happened. Which seems more than a little tasteless.

They also created a new share bonus scheme to give him an extra bung should the board decide that the company faces an important short-term issue that needs dealing with. As opposed to, you know, expecting Mr Fankhauser to deal with it as part of a job that pays a minimum of £700,000 a year plus benefits. As most people would be expected to do.

The company was hit with a 25 per cent vote against at the last AGM. Non-executive directors say they have since consulted with unhappy shareholders and listened with half an ear to their concerns about disclosure. But the company's remuneration report isn't particularly controversial for all this.

It demonstrates how blase we've become about this sort of behaviour, why CEO pay has risen so quickly, and why it is now such an issue.

Thomas Cook pays out a host of overgenerous bonus schemes, creates new ones for no good reason, tweaks the performance criteria when it sees fit, and gets shareholders antsy by failing to properly explain why its chief executive needs to be paid such an absurd amount.

Its remuneration report is full of tub-thumping on behalf of the sainted Mr Fankhauser, and self justification on behalf of remuneration committee members. In that, it's no different from most of its peers.

The question is, is the newly installed political elite, the Brexit elite led by Theresa May, going to do anything it? Well we’re awaiting a green paper from her Government.

We are told it will include proposals to force companies to produce pay ratios that illustrate the difference in earnings between the CEO and the average employee. Shareholders could get binding votes on executive pay packages each year. Oh, and there are some vague ideas about making companies “consult” with employee representatives (but they won’t be allowed into the boardroom with the big boys).

The point is it’s a green paper, so it’s only a discussion document. And the business elite has already chucked a grenade at it via the Big Innovation Centre’s “Purposeful Company Taskforce”.

“We might lose out on top talent if you adopt those measures,” it moaned. So RBS might not have been able to appoint Fred Goodwin. And HBOS might have missed out on Andy Hornby. Disaster!

Presiding over a declining share price, as Mr Fankhauser has, doesn’t put him in their league. He’s not even close.

But let’s imagine these actually rather modest reforms had been in place when he was hired. Let’s imagine the chair of the appointments committee had flown out to Switzerland and said this to Mr Fankhauser: “Listen old chap, we’ve got this binding vote on pay now, and we’ll have to publish a pay ratio and pretend we’re listening to the staff association.

“It’s a bit of a pain in the neck, but tell you what, we’ll still pay you £700,000 basic, throw in the usual load of bonus schemes, and generally make you out to be a superhero in the annual report. How about it?”

Do you really think Ms May's reforms would change his views on such a job? Do you think he’d say anything other than, “Thanks very much, where do I sign?”

There's been a big song and dance about the elevation to power of the Brexit elite on the back of disillusion with the old elite. But, largely made up of millionaires and billionaires, apart from ending the UK’s membership of the EU, which has been known to moderate its worst instincts, it has no intention of changing anything. So Mr Fankhauser can sleep easy. So can all the other Mr Fankhausers at other companies.