2 thoughts on “Cable’s proposals will harm business and politicise pay”

  1. Posted 24/01/2012 at 14:26 | Permalink

    I would be interested in seeing work comparing pay in private with pay in public companies. It seems that since previous reforms to increase shareholder power and transparency, the result has been that executive pay has increased. David Cameron keeps banging on about market failure, but less management capture is likely to lead to an executive team that pursues return on equity more vigourously and consequently gets higher pay. The problem is that looking at one variable alone “increases in executive pay” tells us absolutely nothing. It could be rising because shareholders allow their companies to be captured by management to a greater extent than they used to or it could be rising because executives are adding more value in an internationalised market or in a context in which they are actually better held to account by shareholders than they used to be. Having started work in an institutional investors in the mid 1980s, I can say where my hunch lies.

  2. Posted 25/01/2012 at 09:02 | Permalink

    A turnover of one CEO in seven every year doesn’t seem particularly high to me, especially as people are more likely to become CEO later in their career and so a greater proportion leave due to retirement than in the workforce as a whole.

    Len Shackleton also says: “Executive pay is a tiny proportion of company costs, with little direct impact on dividends or share prices – but getting the right executive team in is vitally important for the business.” but says elsewhere “The general introduction of ‘clawback’ rules to make allegedly failing executives repay their rewards positively invites litigation, for failure is rarely clear-cut”

    So, as we know that failure (and success) are rarely clear cut (because so many factors can affect company performance – not just the performance of the CEO, however good or bad) how can anyone be really clear about whether they have the “right” executive team?

    I’ve worked for many companies and just two CEOs were very clearly responsible for the company’s success. In the first case, the CEO founded the company, so no argument there. In the second, there was a large element of good fortune about the company being in the right place at the right time, but it was the CEO that saw the magnitude of the opportunity and exploited it highly effectively. However, in the other cases, although I personally thought some bosses were good and some not good, it would be very difficult to quantify to what extent they were responsible for the success or lack of success of the company concerned – the situation the company was already in was a much greater factor.

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