Executive wealth creation

There's a very good daily Australian financial newspaper put out by the Fairfax group to which I subscribe. Because I get the print version, I have a license to read it online, as well. But, dear reader, if I link to it you cannot go there without a paid subscription, so I would only rarely cover an article in it at this blog.

That said, I want to report that, according to that paper, "Boards are bracing for an investor backlash against executive salaries at annual meetings... as investors for the first time exerecise an advisory vote on company 'remunerations reports'. In the reports, boards must outline how they set executives' pay, explain how it is tied to performance and disclose the packages of their top 10 executives in greater detail than before...." (AFR, 19 Sep.)

Now this is where we need to start paying attention, because this performance thing is pretty tricky in this circumstance. You will have heard the old saw that a rising tide lifts all boats? That's what we have to watch for. Think back to the chart posted earlier today, showing the whole Aussie market has been rising. If a company's value rises because the whole market, or a particular segment of it, is rising, does that represent "performance"? Do you reckon the guys on the lower rungs get that increase lauded in their performance reports?

In addition to the coincidental rising values, there is a similar boat lifting exercise that moves executive and board pay in a lock-step fashion. Think of the locks in overland canals that manage the flow of water to carry boats up hill. Think back to this quote: "compares favourably with the fee pools of Australian companies of comparable size". http://guambatstew.blogspot.com/2005/09/time-to-pay-fiddlers.html

Now, I'm one who does believe that a good executive is due a good wage. I don't begrudge a well paid exec her due. But I think boards should be as disciplined in setting executive pay as the executives are in setting lower rung pay, and that all employees should share, if any do, in the rising and falling tides. Because, really, it is the shareholders who should get the greatest benefit of rising tides, as they take the greatest hit on falling tides, such tidal flows being what market risk taking is all about.

Trackback this topic on this blog: http://guambatstew.blogspot.com/2005/08/eye-of-beholder.html

http://guambatstew.blogspot.com/2005/08/dont-mention-executive-pay.html

For more reading (some only tangentially related to this post):

http://www.abc.net.au/worldtoday/content/2005/s1455911.htm

http://www.manifest.co.uk/news/2004/20040510Forbes.htm

http://www.iccwbo.org/CorpGov/stories/July_23_2003-36.asp

http://www.heraldsun.news.com.au/common/story_page/0,5478,16657767%255E664,00.html

http://www.businessweek.com/ap/financialnews/D8CNF3R02.htm?campaign_id=apn_tech_down&chan=tc