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Having to Pay the Piper

A topic that consistently seems to be discussed is that of executive pay particularly when there are still recessionary pressures and the government bail outs are still very much front of mind.

Disgruntled shareholders continue to challenge the boards of various companies accusing them of having the balance wrong – large sums of money going toward the board and executives and frankly the stark accusation of the organization, and therefore shareholders, not getting value for money. Bombardier is a very real recent example. So are executive salaries appropriate and do the beneficiaries actually earn it?

Some suggest that highly paid executives are part of a ‘talent myth’. The ‘talent myth’ states that there are a small proportion of high flying employees who make a significant 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, so why should they be so hard to replace?

Many consider it a conspiracy by other high-paid people, institutional shareholders, pay consultants, even journalists and academics who have a vested interest in sustaining high pay.

But there are also contributing factors within companies. 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.

Now we do see our fair share of poorly structured bonus schemes and without exception, every incentive scheme delivers some form of undesired behaviour. We also see some executives that receive large remuneration packages that barely earn them but the exceptions perhaps prove the rule.

It is easy for non-executives to make statements around what is and what isn’t fair for executive pay but working closely with executives we see the day to day realities of these roles first hand. Extraordinary complexity, demanding stakeholders, tough and hard to reverse decisions being taken, building and sustaining alignment, ensuring the well-being and safety of the workforce and their family units, structuring complex finances…….the list goes on.

Certainly we agree that lots of people have the characteristics needed to be successful but faced with the day to day challenges of actually carrying out and effectively executing the role, what incentive is there for people to aspire to the senior roles?

Now we’re not suggesting we should feel sorry for the people at the top – they’ve made their choices after all. However, if the incentive is not there for these people to succeed and for people to push themselves to progress, then the senior talent pool becomes depleted very quickly…..

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