The January 18 edition of The Economist gives us an interesting article about executive compensation which examines and challenges the widespread opinion that executives are paid too much today (although it also acknowledges the very real danger of allowing this perspective, whether based in fact or not, to go unaddressed). An excerpt is presented below.
The chief mistake of the past 15 years was the granting of too many share options to too many people on terms that were too generous. That was costly and unwarranted, but it stemmed more from foolish accounting and tax policies supercharged by bull-market mania than from a sinister plot hatched in the executive suite.
This is not to deny the abuses and downright crookery that have marred executive pay. Even now, dozens of senior managers are under investigation for “backdating” their share options—illegally manipulating the timing of grants to increase the likelihood of a payment. Nor is it to assert that all is right in the boardroom. Indeed, the case for reform is strong.
It is, however, to argue that popular opinion is wrong. The lion's share of the executives' bonanza was deserved—in the sense that shareholders got value for the money they handed over. Those sums on the whole bought and motivated the talent that managed businesses during the recent golden age of productivity growth and profits. Many managers have done extremely well over the past few years; but so, too, have most shareholders.
The article goes on to say:
...executive pay is the most controversial aspect of the increasing inequality that has appeared over the past couple of decades. As the topmost echelon appears to be capturing a huge share of new wealth, everyone else's wages have barely shifted. This would be disruptive even if managers were felt to deserve what they are paid. It would be explosive if high pay continued to be seen as a swindle. Ultimately, businesses function with the blessing of workers, shareholders, customers and voters. If business leaders are universally seen as immoral and grasping, cynicism and mistrust will flourish and choke enterprise. Jeb Bush, a Republican former governor of Florida and no enemy of business, gave warning last year that “if the rewards for CEOs and their teams become extraordinarily high with no link to performance, then it undermines people's confidence in capitalism.”
It is worth the time for a full reading.
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