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Friday, March 30, 2012

Strategic CSR - Executive pay

Over the new year break, I read two articles about upcoming initiatives that are designed to influence excessive CEO/Executive compensation. The first article reports on planned reforms by the SEC contained within the Dodd-Frank legislation that was passed by the U.S. Congress in 2010 (http://www.sec.gov/spotlight/dodd-frank/corporategovernance.shtml):

In 2012, the SEC will require the disclosure of the ratio of CEOs’ total compensation to the median total compensation for all other company employees. The question remains whether the inevitable embarrassment will be the driver to lead CEOs to say “enough” or for directors to modify compensation awards.
Quote taken from http://theweekinethics.wordpress.com/ (blog entry—January 6, 2012)

The second article reports on plans by the UK government to extend shareholder rights to a veto over executive compensation packages. While the shareholders of UK firms can already vote on executive compensation packages, the vote is currently not binding on management (Issues: Executive Compensation; Case-study: Stock Options, p174):

[The UK Prime Minister, David Cameron] called for the end of the ‘merry-go-round’, where highly-paid bosses sit on each other's boards and approve pay awards. ‘The market for top people isn't working, it needs to be sorted out,’ he told The Sunday Telegraph. ‘Let's empower the shareholders by having a straight, shareholder vote on top paid packages.’
Quote taken from http://sg.news.yahoo.com/british-pm-vows-crackdown-executive-pay-031049336.html

Both ideas seem to be good initiatives; neither will probably make much difference. Ultimately, there is no sense among senior executives and boards of directors that there is a serious problem regarding executive compensation. More importantly, it is not something that society as a whole seems motivated to change. While there is plenty of symbolism (see above) and the odd scapegoat dragged onto the front pages of the newspapers (e.g., http://www.huffingtonpost.com/2012/01/31/fred-goodwin-ex-rbs-ceo_n_1244495.html), nothing much appears to change (e.g., http://www.independent.co.uk/news/uk/politics/business-as-usual-osborne-fails-to-bring-bank-excess-to-account-2209932.html).