Exec Comp: nice try but no solutions!

The suggestions that CEO's and other members of the gilded C-suite should be paid with corporate bonds instead of share options or on the basis of some convoluted performance metric are non-starters. The hold that senior executives and their acolytes in academia and the media - not even mentioning mindless holders of their company's shares among the non-fiduciaries in the world of institutional money management or Private Banking - is just too strong. The only way they can be brought to heel is with a simple and fair solution as advocated by Pro Governance, i.e. no special deals (perks, pensions, 'incentive' schemes etc) for the anointed and self-governed few but a simple pay and bonus scheme that treats ALL EMPLOYEES on the same basis. In addition shareholders should have a BINDING vote on compensation for the CEO before it is agreed.
The real problem with CEO Pay (Bloomberg View)
(7 August 2015)

Jeremy Grantham gets it right - up to a point

He agrees that Executive Compensation, especially for CEO's and other top officials, has gone way beyond what can be called reasonable. But the remedies he suggests do not go far enough. These new rules will be gamed as well and I fear the only real solution is a radical end to selective compensation schemes that are based on the wrong management theory that says that already well-paid executives need to be showered with incentives in order to do the best possible job.
In addition, as is the case with most lamentos about Executive Pay, there is no proposal about how change to the excesses we experience can be brought about.
It is my opinion that the main culprits are the top 30-50 investment institutions that do not take their fiduciary responsibilities seriously enough. They are basically living in a bubble and are completely cut off from the wishes of their end-investors (and I am not talking about allocators in Private Banks or Pension Fund Trustees but the main in the  street who is the ultimate paymaster of the Fund Managers and Corporate Executives.
 (29 July 2015)

The 10 Topics that really matter

Jeremy Grantham at the Conference on Inclusive Capitalism

(Too) Close ties between Executive and Board

No surprise there! While this case may be at the extreme end of the spectrum the current selection process for board members is inherently problematic. The Insiders - board and executives - basically select their own supervisors while the real members of the company in most cases rubberstamp the elections. And even then they are (poorly) represented by their fiduciaries, i.e. the investment institutions that manage their savings. Activist shareholders offer no solution either as their motives are highly conflicted and basically greed rather then the best interest of all stakeholders provides the main incentive. A wholesale revision of company laws it the only way out of this dead end. And please spare us the argument that 'free markets' must not be hampered and remember that corporate entities have been created by legislation.
Dish Suit Shows Close Ties Between Executive and Board Members (NY Times)
 (12 July 2015)

We know the Problem, but what is the Solution?

"If we experience another five years of egregiously excessive executive pay, ludricrously warped incentives and behaviour in the financial system, combined with pathetic levels of business investment, then it will be more difficult to argue that the market economy delivers for everyone."

Well said Roger Bootle (Daily Telegraph, May 18, 2015). But what should be DONE? We have done more than enough comment on the problem of executive compensation!

Shell to buy BG for $70 billion

Headlines such as these demonstrate what is wrong with corporate governance. It may just be that keen journalists present the takeover/merger as a fait accompli - we all know that the shareholders of both companies will still be asked to approve the deal. But apart from the dubious practice of break-up fees the gist of the sentence is that this is a done deal agreed by a quasi-feudal caste of senior managers and their poodle boards over the heads of shareholders and employees. The correct way would be to consult the stakeholders from the beginning, working out the pros and cons of various options (should the del be done, why? what are the benefits) and then putting the options to a shareholder vote. Expensive consultants should be kept at bay and costs scrutinised carefully.

USS conducts member survey on SRI

The willingness of a large pension fund to conduct a survey asking its beneficiaries about their preferences with respect to socially responsible investment options is commendable. It is a step in the right direction as there is a glaring deficiency in present practices involving the management of assets, be it in pension funds, insurance companies, mutual funds or private banks (and we should not forget rapidly growing Sovereign Wealth Funds).
There is a well-documented agency problem in the management of companies with a dispersed ownership, i.e. the majority of major corporations. But there is another agency problem involving the relationship between asset managers of every form and shape and the final (real) investors whose money they are safeguarding. If anything, this latter agency problem might be of more relevance as it is directly responsible for the agency problem that can be observed in the corporate sphere.
So while a survey about SRI is welcome it is but a step in the right direction. Hopefully other fund will start to follow suit and in due course the end investors will have a major say in all aspects of corporate governance.
(9 Dec 2014)

Bill Gross's pay at Janus kept secret

I am sure he will not be paid $200 Mio that Pimco supposedly paid him in 2011 but it will still be an eye-watering amount of money. So one can understand the concern at Janus and its refusal (Financial Times, Paywall) to publish his compensation package. The problem as I see it is that Asset Management firms should be even more upfront and 'politcially correct' about their compensation structures as they are the fiduciaries of the ordinary saver and investing public. As such they have the task to monitor the remuneration practices in the companies they invest in and should demonstrate that they are 'whiter than white'.
(21 Oct 2014)

APG Asset Management Issues Remuneration Guidelines

When a large Asset Manager like APG publishes Remuneration Guidelines in merits special attention given that APG is less conflicted than pure for-profit Money Managers. But the most important question is still waiting for an answer: How much pay is enough? 1 per cent, 10 per cent, 20 per cent (as claimed by 'alternative' fund managers, and this does not even include the basic management fee) or even more as some 'star' hedge fund managers think they are entitled to? As long as the fundamental mistake of believing in the merit of 'incentive-based' compensation is not accepted there will be no end to the ratcheting up of (senior executive) compensation. It is sad that the leading business schools and self-appointed management 'gurus' propagate and foster this myth. Commission-based compensation may work for car salesmen but do senior executives really get dangled carrots in front of their noses in order to do a good job. And why should all the success of a business be attributed to a few (mostly men) at the top of the hierarchy?
(19 Oct 2014)

Board should communicate more with shareholders

This suggestion by Sodali Chairman John Wilcox merits our attention. But is not a key problem that the (Chief) Executive has a major role in selecting his own supervisors? Naturally there are Board Chairman in several countries that are nominally in charge but still there is a dis-connect as the shareholders are rarely able - and/or willing - to play a major role in selecting board members. There may be a director tasked with the role of being the point of contact to shareholder queries but it is often all behind closed doors (thus creating conflicted investors that may obtain inside information). But again, without such a dialogue, how can one expect shareholders to 'engage' with the companies they invest in?
(17 Oct 2014)

Bosses paid too much?

It is all very well to say that Bosses are paid too much and most observers might agree with APG Asset Management's Herman Bots (FT paywall). But it seems as if even the voting behaviour of the largest institutional investors makes little or no impression on those who decide compensation policies for CEO's and senior executives in listed companies. And we do not even touch upon the secretive world of executive pay as practised in the world of 'Private' Equity. So we are still stomped for your views on how to put effective curbs on executive compensation.
(29 Sept 2014)