Pay: Pru (UK) sets poor example

The corporate oligarchy does not seem to be capable - or willing - to learn. To shower excessive rewards on the few (Seven) is morally despicable apart from being totally unproven to contribute anything to company performance. A good salary and a company-wide reward scheme open to ALL employees on a salary-based pro-rata basis should be incentive enough. Keeping one's job should be 'reward' enough, and under performers will be shown the way out (is that not enough 'incentive' to perform?). A major institutional investor such as the Pru (do they know that they are actually only fiduciaries for the real investors, do they care?) is critically conflicted in terms of corporate governance and should be a shining beacon for good behaviour...o tempora o mores! Any reader who agrees with us should get in touch - only numbers count in the battle for better corporate governance. There are plenty of studies and organisations working on the issues but they are basically either talking shops (sometimes well paid) or headless chickens without leadership.

Shaming the overpaid is not enough

If people are shameless they will not have any problem with putting their pay into the limelight, they might even be proud of it! suggests that the pay for top executives should consist of basic pay and all bonuses, perks, pensions, 'incentives' (to get out of bed?) and 'rewards' should be strictly on a company-wide basis (John Lewis Principle) and the same percentage of base salary should be applied to all staff members when calculating such emoluments. This would radically simplify compensation structure and do away with expensive 'remuneration consultants'. There might still be a temptation to set the basic salary at too high a level. But this would be much easier to police than the thicket of remuneration schemes that only get more and more convoluted (to disguise the excess?).

Revolution in the City?

This headline (CityAM) caught our attention this morning. Given the tense political situation in the World we expected pictures of bloodshed and mangled bodies. But no, the revolution referred to the 'protest' votes against top executive pay that were cast by the (institutional) shareholders of several large UK companies. But so far, this protest is not much more effective than the protest staged by Occupy Wall Street. First of all, the votes are not binding. In addition, the opposition against admittedly excessive top executive pay lacks a reliable compass. Even if one optimistically assumes that pay awards will scaled back (unlikely) or at least not increased much more in the future (are pigs flying?) the fact is that the whole discussion about top pay needs to focus on the key question: what is fair and justified 'compensation' for top executives? Claiming that top pay is set by 'market' forces is no answer as there simply is no proper 'market' price for top executives' pay. If there would be, remuneration would not be pegged so as to be in the 'top' quartile of the peer group. Company boards would be hard at work to develop a strong group of executives below the CEO level hat could take over if the CEO finds his pay as being too low. In addition, remuneration consultants would point out those CEO's that get by with less compensation and suggest that the CEO matches their pay - or else. Ultimately the question boils down to how the boards and remuneration committees are appointed. As long as the CEO has a decisive hand in appointing his own supervisors the problem will never be addressed properly. Similarly, the major investing institutions - especially the top 40 who control nearly two thirds of all assets - have to take up their responsibilities as fiduciaries for the ultimate shareholders. Either there has to be a way to give the end investors a say in the voting policies of their fiduciaries or the door will open for politicians to interfere more and more in this aspect of corporate governance.