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Thursday, September 16, 2010

bosses wages

A shareholder at the Cable and Wireless AGM claimed "All the money and all the profit seem to be going toward the salaries of the board and I didn't necessarily think that they were worth that amount of money."

Management writer David Bolchover believes high pay is sustained by an ideology that he calls the "talent myth" which states that there are a small proportion of high flying employees who make a huge impact on their companies success and that those employees are extremely difficult to replace. But lots of people have the characteristics needed to be successful, Mr Bolchover insists, so why should they be so hard to replace? The answer, he reasons, is that there is a whole industry consisting of other high-paid people, institutional shareholders, pay consultants, even journalists and academics who have a vested interest in sustaining high pay.

Kit Bingham, who recruits top people for executive head-hunters Odgers Berndtson reasons, companies need to persuade the City that they are ambitious. One way of doing that is to try and recruit top people, paying top salaries, even if the person is not actually a top person in reality.

Jon Terry, head of reward at Pricewaterhouse Coopers, says weak or low-quality remuneration committees setting vague or unchallenging bonus targets can easily allow high bonuses to be paid, even when companies have performed poorly.

According to Sarah Wilson, head of Manifest, which advises institutional investors on how to vote on such things as executive pay company shareholders are not always interested, either. Many are based overseas and even some of those based in the UK "do not see companies as things that are necessarily generating wealth for the economy, but as things that they just buy and sell and trade".

The biggest source of the growth of high pay and wider inequality has been bonuses, according to some recent research. And those who have benefited have been "the people already within the top 10%, and then even within that group the top 5% and the top 1%" of the income scale, according to Brian Bell, a Research Fellow at the London School of Economics' Centre for Economic Performance. But bonuses do not even work as intended.

Professor Dan Ariely, a leading behavioural economist explains his research shows that while people jump higher or perform better on manual tasks if they are offered greater rewards, "on tasks that require concentration, thinking, memory, any kind of cognitive skills… the more money we put in front of people, the worse they do".

We also read Joel Gemunder, the chief executive officer of Omnicare, retired on July 31, almost exactly one year after his company announced a wide array of wage cuts and layoffs. The former head of the nation’s top provider of pharmaceuticals for seniors won’t have to worry much about his own personal economic security. He’s walking off into his golden years with a getaway package worth at least $130million. 50 major US corporations have each axed more than 3,000 jobs. Yet their CEOs, as our just-released report for the Institute for Policy Studies documents, last year took home 42 percent more pay on average than the S&P 500 CEO average. At America’s top 50 companies, CEO pay - after adjusting for inflation - is running at quadruple the 1980s average and eight times the average in the mid-20th century.



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