Is the CEO's bonus actually based on the performance?

The chief executive of BAE systems, Ian kings was paid a bonus imbursement of £2.3 M for years ended 2010 which. If we compare it against the statistics before two decades, the CEO of British aerospace was paid £23 000 annual bonus payments in 1978. Relatively, the current level is a rise of 8000%. Theoretically, if the bonus of the chief executive’s is linked with the performance, is it possible to detect an actual growth in performance similar to the increase in bonus paid?

Moreover, 3000 employees of BAE were redundant as a result of its decision to quit from UK civil aviation industry there employees are supposed to be compensated by the UK government under the UK defense procurement rules. There for the question arises is it fair enough for CEO paid bonus payments while the tax payer of UK bears the cost of redundant employees.

BAE defends its decision by stating that they have achieved a better performance in 2010 than the anticipated level and they bonuses are determined to attract and retain the talented executives. However the effectiveness of this argument can be questioned. Have the talent of these executives actually caused to boost the performance of BAE in line with the bonus they are paid.

Further, considering the management structure of BAE, similar to the most of other companies the remuneration of CEO is determined by a three member committee of non-executive directors which is quite acceptable. But on the other hand the CEO, Ian King is a member of the committee who decides the remuneration of non-executive directors.  In fact, it’s each of them deciding each other’s pay. Even though the remuneration committee states that the ‘reports last year was highly commended for it transparency ’, the effectiveness of the current structure is not satisfactory according to the corporate government practices. The independence of the remuneration committee seems not adequate up to the established corporate governance standards.

The issue arising here is what is the optimum level of bonus to keep satisfied both of criteria which are shareholder wealth maximization and attracting the talent. Even though BAES attracted the experts in the industry is it possible to retain them without an increase in the remunerations year by year. As a result of the prevailing competition, the remuneration of top executive is more likely to be increased merely with the aim of retain them in company even without a boost in performance or growth in share prices of the company. The responsibility of remuneration committee in regard to this issue is to determine the bonus payments of the executive based on appropriate performance targets. Additionally, more independency has to be implemented among the non-executive directors and CEO when determining each other’s remunerations.