It’s the same old story. As soon as stock markets crumble one of the first areas of attack is executive remuneration.
Today’s Melbourne Herald Sun takes a big swipe at fleeing Telstra COO Greg Winn. He is galloping off back to his ranch in the US gunslinging and shouting “yee haa!” We assume that’s what he’s doing. He was one of the famous Telstra ‘3 Amigos’ brought in at the same time as Sol Trujillo.
According to the newspaper report, Winn will scarper having earned $21 million in just over three years.
Naturally the ACTU hasn’t missed a beat by sticking their oar in, “It’s outrageous that he will leave Australia with an exorbitant payout of at least six months’ base pay and will continue pulling fees from the company as a consultant, while Telstra employees are constantly told to batten down the hatches, accept pay offers that don’t keep pace with the cost of living, and are denied the right to collectively bargain”
It doesn’t help when you see stories of Wall Street bankers cashing in their chips for bonuses. All this just as their firm picks up a stash of government bail out cash. John Thain, the CEO of Merrill Lynch authorized total bonuses to staff worth USD$15 billion. He did that just before Bank of America completed the takeover of Merrill’s on January 1st.
And it was just days before Bank of America secured a further USD$20 billion of taxpayer’s money.
But as we head back to these shores we are certain the level of executive pay over-the-topness is no less prevalent. Even if the numbers are slightly smaller.
So, who is to blame for the high levels of executive remuneration? Is it the greedy fat cats for stuffing their pockets? Is it the toothless institutional shareholders? Surely they wouldn’t be too afraid to vote against pay scales for fear of missing out on all those ‘inside’ analyst briefings.
Or is it increased regulation by government and regulators who insist that executive remuneration should be transparent?
All are probably connected in some form or another. But certainly forcing companies to publicly reveal the salaries of executive managers hasn’t helped to keep a lid on their pay.
That was supposed to be the idea anyway. If boards of directors knew that executive pay would have to be disclosed in the annual report and voted on at shareholder meetings, they would be too embarrassed to stick their faces too far into the trough.
How naive and wrong they were. All that’s happened is that annual reports have become useful for compiling executive pay league tables. Everyone knows what everyone else is earning. So they want to be paid at least higher than the average. And if the executive is a really good negotiator then he/she may even find themselves top of the class.
But if everyone strives to be paid higher than the average, well, you don’t need me to explain what happens to the average.
But never fear, the regulators are here. And they are being ably supported by those with a vested interest, namely the consulting firms. The Australian Financial Review tells us that “Companies could be required to comply with a new code of conduct governing executive pay under changes being considered in Australia and internationally.”
Part of this “code of conduct” would be to ensure that a “company’s remuneration philosophy is not encouraging excessive risk-taking.”
Needless to say, any form of further regulatory tightening will only have the opposite effect to what is intended. Rather than discouraging excessive risk-taking it will discourage any risk taking.
When an economy is on its knees the last thing you want is for entrepreneurial business men and women to be too afraid to do something. To afraid to take a risk in case they end up in court. Or even worse than that, not getting paid.
Rather than throwing billions and trillions of dollars at businesses that have tried and failed, they should rip up regulations and arbitrarily imposed “codes of conduct.”
Businesses and executives who are prepared to take a risk will get rewarded if they are successful. If they are unsuccessful then they should be left to be dealt with by the market.
Of course, government intervention is creating an environment that will do exactly the opposite.
That will mean consumers, businesses and the economy will all be worse off. But at least the executive pay levels may drop for a while.