{"id":41,"date":"2003-10-10T17:41:07","date_gmt":"2003-10-10T21:41:07","guid":{"rendered":"http:\/\/www.brianarner.com\/weblog\/wordpress\/2003\/10\/reigning_in_executive_compensa\/"},"modified":"2003-10-10T17:41:07","modified_gmt":"2003-10-10T21:41:07","slug":"reigning_in_executive_compensa","status":"publish","type":"post","link":"http:\/\/www.brianarner.com\/weblog\/2003\/10\/reigning_in_executive_compensa\/","title":{"rendered":"Reigning In Executive Compensation"},"content":{"rendered":"

The Economist<\/i> weighs in on the increase in corporate executive pay<\/a>:<\/p>\n

The highest-profile cases of excessive pay, unfortunately, are not isolated exceptions. Bosses’ pay has moved inexorably upwards, especially in America. In 1980, the average pay for the CEOs of America’s biggest companies was about 40 times that of the average production worker. In 1990, it was about 85 times. Now this ratio is thought to be about 400. Profits of big firms fell last year and shares are still well down on their record high, but the average remuneration of the heads of America’s companies rose by over 6%.<\/p><\/blockquote>\n

What accounts for this? Overly-optimistic expectations are one factor:<\/p>\n

The pay-setting process is characterised by what has come to be known as the Lake Wobegon effect, after the novel \ufffdLake Wobegon Days\ufffd by Garrison Keillor. All Lake Wobegon’s children are said to be \ufffdabove average\ufffd. Most boards appointing a new chief executive will seek the advice of a pay consultant, who will tell them the going rate. The trouble is, no board wants to pay the average for the job. The above-average candidate which directors have just selected as CEO, they invariably reason, deserves more. And so bosses’ pay spirals upwards.<\/p><\/blockquote>\n

Can this madness be stopped? Yes, says The Economist<\/i>, by the shareholders:<\/p>\n

If shareholders want to break this mould they need to be far more diligent. Greater transparency about executives’ pay will undoubtedly help, and moves in that direction in both America and Europe are to be welcomed. And yet shareholders must also exercise more say in choosing genuinely independent directors to select and monitor the CEO. Few public companies today in either America or Europe have a majority of independent directors. This week, America’s Securities and Exchange Commission took steps in the right direction by proposing an increase in the power of shareholders to nominate and appoint directors. Once they have these powers, shareholders should make use of them.<\/p><\/blockquote>\n

Sounds good in theory, but in practice it’s a different matter.
\nThis past Monday I attended a lecture<\/a> by securities attorney John Latham<\/a>. One of the interesting points he made was that given the rise in shareholder lawsuits and increased liability under the Sarbanes-Oxley Act, people may now be more wary of serving on the boards of multiple corporations. I’m not sure if this development will make it easier for shareholders will elect “independent” directors, but it may have some impact on corporate boards.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Economist weighs in on the increase in corporate executive pay: The highest-profile cases of excessive pay, unfortunately, are not isolated exceptions. Bosses’ pay has moved inexorably upwards, especially in America. In 1980, the average pay for the CEOs of America’s biggest companies was about 40 times that of the average production worker. In 1990, […]<\/p>\n<\/a>","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-41","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-uncategorized","7":"h-entry","8":"hentry"},"_links":{"self":[{"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/posts\/41","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/comments?post=41"}],"version-history":[{"count":0,"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/posts\/41\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/media?parent=41"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/categories?post=41"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brianarner.com\/weblog\/wp-json\/wp\/v2\/tags?post=41"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}