01 March 2007
If you don't like it, sell the Stock!
Letter to the FT - 26/02/07 (not published)
The letter below was written in response to a letter by Peter Woan, published in the FT 26/02/07. The Peter Woan letter can be viewed in full at http://www.ft.com/cms/s/4ebe74f2-c53e-11db-b110-000b5df10621.html (subscription to ft.com required).
Dear Sir,
Peter Woan's advice that, "If a public company conducts itself in a manner that a shareholder finds offensive [in respect of excessive executive pay], the shareholder's remedy is simple and quick: sell the stock," is a refreshing reminder of the traditional investment remedy. (Letters: "If you're not happy, sell your stock" 26th February 2007)
The assumption behind this remedy is that the capital realised by the sale can be reinvested in other public companies that do not indulge in excessive executive pay. Unfortunately this assumption is not valid in the UK. The practice of setting executive pay by comparison with other companies makes the executive pay of all public companies ratchet up to unacceptable levels in unison. The investor who wants to invest in public companies with lower executive pay has nowhere to turn.
The practice of comparative pay positioning is recommended by the Supporting Principle of section B1 of the Combined Code. This supportive principle should be removed. Instead remuneration committees should be encouraged to consider the leadership messages conveyed by their executive pay. This would then give investors real choice in respect of executive pay.
Yours faithfully,
Rev Patrick Gerard
The letter below was written in response to a letter by Peter Woan, published in the FT 26/02/07. The Peter Woan letter can be viewed in full at http://www.ft.com/cms/s/4ebe74f2-c53e-11db-b110-000b5df10621.html (subscription to ft.com required).
Dear Sir,
Peter Woan's advice that, "If a public company conducts itself in a manner that a shareholder finds offensive [in respect of excessive executive pay], the shareholder's remedy is simple and quick: sell the stock," is a refreshing reminder of the traditional investment remedy. (Letters: "If you're not happy, sell your stock" 26th February 2007)
The assumption behind this remedy is that the capital realised by the sale can be reinvested in other public companies that do not indulge in excessive executive pay. Unfortunately this assumption is not valid in the UK. The practice of setting executive pay by comparison with other companies makes the executive pay of all public companies ratchet up to unacceptable levels in unison. The investor who wants to invest in public companies with lower executive pay has nowhere to turn.
The practice of comparative pay positioning is recommended by the Supporting Principle of section B1 of the Combined Code. This supportive principle should be removed. Instead remuneration committees should be encouraged to consider the leadership messages conveyed by their executive pay. This would then give investors real choice in respect of executive pay.
Yours faithfully,
Rev Patrick Gerard
Labels: comparative pay positioning, leadership, sell
