Compensation
Murdoch bonanza
This headline caught our eye and is also proof
that we are not to be blamed if there is growing public disenchantment with
compensation trends that are one-sidedly in favour of management and in favour
of the chief executives in particular.
The key elements in James Murdoch's compensation package as head of the media
group's Asian and European arms put him in line to pick up $20 million gross
in his first year in his new role in his father's media 'empire'.
The bonus package consists of the usual cash and stock elements as well as a
long-term incentive scheme that is tailored for the benefit of a small group
of top executives.
ProGov
has consistently argued that all non-individual bonus and incentive schemes
(as well as pensions schemes for that matter) should be made available to all
employees on a pro-rata basis related to base salary. Discretionary Bonuses
should continue to be based on individual performance. For example, as the CEO could decide the bonus of and head of division who in
turn could determine the bonus due to his staff and so on all the way down the
organisational ladder.
To avoid a ratcheting up of the bonus levels, however, there will have to be
strong checks on the CEO's overall compensation. This would give CEO's a
strong motive to keep a keen eye on compensation levels. We think the best way
to avoid excessive payments would be to (1) link CEO pay in the main to the
level of bonus due to all staff (firm wide bonus), (2) to ban any long-term
contractual payments after the initial contract term (when the CEO was hired)
has expired and (3) to put all additional bonus payments or perks to a
shareholder vote BEFORE they are being allocated.
Bonus payments for CEO's are in any case a dubious innovation of the last
management culture of the past 10 - 20 years. One would assume that a good
salary package should be enough to do a good job, esp as the overall success
of an organisation is due to the efforts of all the employees. Some top
companies such as BP or Nestle have been around for decades and the incumbent
CEO is building on the contributions of all previous employees.
Retaining his position and a not inconsiderable salary plus all the perks
associated with his office should be enough reward for the CEO (as should
simple pride in a job well done). The alternative is also simple - if the
performance is not sufficient it will be loss of office. It is for that reason
that any organisation should have a strong culture of management development
so that at any point in time there are good candidates for promotion among the
senior managers. This is not only a Macchiavellian requirement but simple
common sense as a CEO could be victim of an accident or medical condition at
any time or decide to jump ship to another position.
19-Mar-08
Top Pay at WPP, Next and
Morgan Stanley
The controversial pay deals
for top management at these firms demonstrate that despite the fact that
compensation of top management features prominently among the topics covered
by advocates of better corporate governance, progress is at best tenuous.
The subject of Stephen Crawford's novel exit parachute at Morgan
Stanley we have covered elsewhere. Here we can only add that the board
at Morgan Stanley at best should resign en masse (we do not want to
dwell on the worst case we would have in mind for them).
The proposed scheme for the top 25 executives at Next is again linked
to the absolute stock market performance of the share price. This linkage it
totally unacceptable as only the relative performance of a share should be
the basis of such a scheme.
In the case of WPP the Chairman of the Remuneration Committee Stanley Morten
is under fire for approving a remuneration scheme that is unpopular with the
shareholders. If there would be clear rules agreed by representatives of the
investors (including the real investors, not
only the institutions
that are mere intermediaries or trustees for them) these votes (after the
horses have bolted) would be
unnecessary.
13-July-05
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Yell backs 110% bonuses for CEO and
CFO as shares hit low. They also receive double-digit salary
increases
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