04 December 2007
Angela Merkel on executive pay
Following Mangela Merkel's complaints about excessive executive pay, ft.com ran a discussion, "Are top executives paid too much?" This was my contribution:
Executive Pay by Patrick Gerard 03 Dec 2007 09:24 PM
Yes, top executives are paid far to much. As the FT front page and leader reported on 15th October, even US Corporate Leaders think they are paid too much. How have we got into this situation? There are several factors:
- conflicts of interest within a unitary board
- lack of focus on fiduciary duty
- the temptation to see salary as a quantifyable (but utterly flawed) measure of business success
- Remuneration consultancies who find it easier to sell services if they promote high rewards
- Increasing professionalisation and complexity in the pay setting process, preventing outsiders from making effectively comments
- The practice of comparing salaries and seeking to pay above median
- institutional investors being so well paid themselves that they can't complain about excessive pay in management
In the UK regulatory problems have also contributed:
- Almost all the top people in the Financial Reporting Council are people who have benefited from high executive pay
- A concenus approach to the definition of the Combined Code has forced it to collude with high executive pay
- A government too dependent on support from business to raise issues that business finds difficult
Is excessive executive pay really a big problem? Absolutely yes! It creates an environment in which a manager has to "play the game" of prioritising personal rewards over the financial health of the nation. Pay (specifically stock options) was a huge factor in the dot.com crisis and short term rewards were a big factor in the credit crunch. How long before top earners are allowed to distroy our economy?Angela Merkel is absolutely right to call for intelligent regulation of these matters. Business leaders should put their own house in order before the blunt instrument of regulation does it for them.
This appeared on ft.com at:
http://www.ft.com/cms/6c2bf1ce-91b7-11da-bab9-0000779e2340.html?a=tpc&s=646099322&f=386092324&m=1781098751&r=1781098751
(subscription may be required)
Executive Pay by Patrick Gerard 03 Dec 2007 09:24 PM
Yes, top executives are paid far to much. As the FT front page and leader reported on 15th October, even US Corporate Leaders think they are paid too much. How have we got into this situation? There are several factors:
- conflicts of interest within a unitary board
- lack of focus on fiduciary duty
- the temptation to see salary as a quantifyable (but utterly flawed) measure of business success
- Remuneration consultancies who find it easier to sell services if they promote high rewards
- Increasing professionalisation and complexity in the pay setting process, preventing outsiders from making effectively comments
- The practice of comparing salaries and seeking to pay above median
- institutional investors being so well paid themselves that they can't complain about excessive pay in management
In the UK regulatory problems have also contributed:
- Almost all the top people in the Financial Reporting Council are people who have benefited from high executive pay
- A concenus approach to the definition of the Combined Code has forced it to collude with high executive pay
- A government too dependent on support from business to raise issues that business finds difficult
Is excessive executive pay really a big problem? Absolutely yes! It creates an environment in which a manager has to "play the game" of prioritising personal rewards over the financial health of the nation. Pay (specifically stock options) was a huge factor in the dot.com crisis and short term rewards were a big factor in the credit crunch. How long before top earners are allowed to distroy our economy?Angela Merkel is absolutely right to call for intelligent regulation of these matters. Business leaders should put their own house in order before the blunt instrument of regulation does it for them.
This appeared on ft.com at:
http://www.ft.com/cms/6c2bf1ce-91b7-11da-bab9-0000779e2340.html?a=tpc&s=646099322&f=386092324&m=1781098751&r=1781098751
(subscription may be required)
Labels: credit crunch, dot.com crisis, Merkel
