You ticked the box to confirm that you read the terms and conditions. You lied. Nobody has the time or energy to read the fine print of the contract for car insurance or your Apple phone. Last week a pair of economists won the Nobel prize for designing such contracts. Well thanks, Bengt Holmstrom and Oliver Hart.

Unkind souls might suggest that this award shows how hard it is to find worthy winners of the economics prize nowadays unlike, say, for literature. It is tempting  to ask what economics has done for us, since its most valuable use in the popular imagination is for forecasting, at which it is impressively poor. Some economists have better records than others, for long enough to suggest that it is more than just luck, but by and large, economic forecasting is little better than a random walk. The recent record of both the treasury on the consequences of Brexit and the Bank of England on interest rates suggest that forecasting is just guesswork with added gobbledegook.

Still, the Nobel pair have done a fine service to chief executives everywhere. Their argument is that the optimal contract should link payments to outcomes that reveal the performance of the parties. This sensible principle has spawned the fabulous complexity of the bonus calculation in the CEO’s contract. Spread over a dozen pages of the annual report, it invites the reader into a jungle of targets, strategic objectives, short and long term incentives, performance shares and pension accruals.

Obfuscation in plain sight allows the board to conclude that the CEO has done jolly well in the circumstances, so that he should get the money. At BP, for example, remcom chairman Anne Dowling was so pleased with the contract that rewarded CEO Bob Dudley with $20m despite another grim year that she had to promise shareholders to review it.

The scandal at the Royal Bank of Scotland unearthed by BuzzFeed demonstrates that the baleful influence of contracts with bonuses extends far beyond the boardroom. It seems that many viable businesses were ruined by employees of the bank, whose bonuses depended on debt recovery. Perhaps some economist might win a prize for demonstrating that bonuses benefit only those who get them. But perhaps we knew that already.

Next best thing for a buyback

In his excellent Daily Retailer, Nick Bubb has been teasing Simon Wolfson, the brains behind the extraordinary success of Next, calling him “Mr Buyback Man” for the company’s carefully calibrated share purchase programme. Recently the Next share price has wilted as analysts, like those from brokers Numis last week, fret that web-based newcomers are stealing their clothes and that Next is too dependent on customers taking its expensive extended credit.

Having stopped the programme in July, swamped by post-Brexit selling, Next was back in the market, following the traditionally gloomy commentary from Lord Wolfson. Mr Bubb rather mischievously suggests that the purchase follows improving sales with worsening weather, but with the shares at £46, little more than half their peak, they are now well within Next’s formula for deployment of excess cash. Most companies’ buyback programmes are essentially “keep buying but stop if the share price falls” Not for the first time, Lord Wolfson is showing them how to do it.

A tweet for help

In the dot.com boom, it sometimes seemed that the more money your company lost, the better you were doing. Seventeen years on, here is Twitter, losing more than half a billion dollars a year thanks to burgeoning expenses and despite trebling sales to $2.2bn from 2012 to 2015. As a sharp analysis from Bronte Capital points out, the money spent has barely improved user experience, and the product is essentially unchanged.

When Facebook’s sales were about where Twitter’s are now, it was making half a billion dollars, and the business was innovating while throwing off cash. Twitter is not innovating and is eating money. However, there is plenty that some ruthless Wall Street raider could do on both fronts. The Bronte remedy starts with firing the founder, Jack Dorsey, and concludes: “Carl Icahn – Twitter needs you.”

This is my FT column from Saturday

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