The blog posting in the url below by Mallen Baker (Foreword, pxvii) cuts through much of the comment over recent executive pay discomfort suffered by many firms. Earlier this year, companies from Aviva to Barclays to Citigroup all had strong protest votes registered against executive compensation packages as a result of increased requirements on firms to put the compensation packages of their senior employees to shareholder vote at their annual general meetings:
“It's an interesting point to note, that suddenly shareholders have become lauded as this group that has the power to stick it to the greedy bad bosses.”
Baker, however, recognizes that, rather than a long-awaited exercise in shareholder democracy, this is a case of one highly-criticized group holding another highly-criticized group to account. Or, as Baker puts it:
“For [shareholders], the point is more one of disappointment that they are not earning similarly high returns through the value of the shares that they own. If they were, they would smile warmly on inflated executive bonuses because they had been 'earned.'”
Baker reminds us not to kid ourselves that shareholders are acting on behalf of the wider, social interest:
“This is not a benign force for good. It is the demand of shareholders for 'above average' returns that drove many of the financial institutions to bring in high-risk high-return policies in the first place, which led to the financial crisis. Now they complain that the bosses at Aviva have 'destroyed shareholder value.'”
As such, rather than a liberation, Baker pierces the rhetoric behind these new “say-on-pay” requirements to call it as it is—an exercise in self-deception:
“We may think they are now meting out the justice we have been so long denied by giving certain individuals a huge roasting. Actually, they are standing up for their right to demand financial performance that is unreasonable in the face of the current state of the marketplace. The fact that some of those individuals may deserve their roasting (others were just in the wrong place at the wrong time) shouldn't get in the way of the fact that the process is simply keeping us on the path that caused the problems in the first place.”
Have a good weekend.
David
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Greedy bosses get punished by ... um ... greedy shareholders
By Mallen Baker
May 7, 2012
