Proposal to simplify and control excessive compensation

We have consistently argued that all non-individual bonus and incentive schemes (as well as pensions schemes for that matter) should be made available to all employees on a pro-rata basis related to base salary. Bonus packages (including all cash and stock elements as well as a long-term incentive schemes) should not be just tailored for the benefit of a small group of top executives.

Discretionary Bonuses should continue to be based on individual performance. For example, the CEO could decide the bonus of any head of division who in turn could determine the bonus due to his staff and so on all the way down the organisational ladder.

To avoid a ratcheting up of the bonus levels, however, there will have to be strong checks on the CEO's overall compensation. This would give CEO's a strong motive to keep a keen eye on compensation levels. We think the best way to avoid excessive payments would be to (1) link CEO pay in the main to the level of bonus due to all staff (firm wide bonus), (2) to ban any long-term contractual payments after the initial contract term (set when the CEO is hired) has expired and (3) to put all additional bonus payments or perks to a shareholder vote BEFORE they are being allocated.

Bonus payments for CEO's are in any case a dubious innovation of the last management culture of the past 10 - 20 years. One would assume that a good salary package should be enough to do a good job, esp as the overall success of an organisation is due to the efforts of all the employees. Some top companies such as BP or Nestle have been around for decades and the incumbent CEO is building on the contributions of all previous employees.

Retaining his position and a not inconsiderable salary plus all the perks associated with his office should be enough reward for the CEO (as should simple pride in a job well done). The alternative is also simple - if the performance is not sufficient it will be loss of office. It is for that reason that any organisation should have a strong culture of management development so that at any point in time there are good candidates for promotion among the senior managers. This is not only a Macchiavellian requirement but simple common sense as a CEO could be victim of an accident or medical condition at any time or decide to jump ship to another position.

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