Critical Mass: The Press And Executive Compensation

Rabble rousers or champions of social justice?  

The press is extremely critical of executive compensation. “Russian corrupt police officer with a gold toilet” and “top executive outlandish pay” crammed on the same page.  

The press is central to free speech and democracy. It rouses the critical mass of humanity against injustice. No other force is better at holding power to account. Yet some say the press are sensation mongers, out to enflame the angry mob. Maybe both things are at play. 

Capitalisms attracts criticism. But it is the best force for poverty relief the world has ever known.  So why is executive compensation, as a core part of that system, always in the target zone? 

Executive compensation is not the only area of big personal money. Some attract press comment that invites wonder even admiration, think about… 

  • Oligarch yachts.
  • Footballer super cars
  • Aristocratic wealth.
  • Inventors and entrepreneurs;
  • Entertainers. 
  • Lottery winners.

But for the press, executive compensation is a dagger magnet.  

We never see the headline: “Boss, gets big bonus for delivering jobs, good profits and delighted customers”. Why might that be? 

History  

Most huge wealth or high earning have been around for ages. It’s natural that pop stars earn loads and Earls inherit huge wealth. We all know that; it’s not a story. 

New on the scene is high executive compensation. That looks abnormal, pay far too big and undeserved.  

Broken market  

The market for top pay is broken. The market is not free, top jobs are handed round to insiders, “Jobs for the Boys!”.  While ethnic and gender diversity is growing the legacy position overhangs, so suspicions remain. 

Unseen value  

What do top executives do for their massive pay? Looks like an office job of some kind to me, surely it can’t be that hard?  

Entertainers and sports stars we love. Their pay is obviously much more than normal people as I know I cannot kick a football like Ronaldo, or sing like Cher, the difference is plain. 

Unregulated  

Top bosses set each other’s pay. You scratch my back, I scratch yours. Shareholders are asleep at the wheel, or too busy with their own big bonuses to care.  

Real mistakes 

Stockbrokers predict company performance, with limited success. Throw in extra judgments on pay and performance and the possible outcomes grow geometrically.  

So sometimes things go wrong and when a mistake happens, the press pounce.  

Poor explanation 

This is an own goal.  

Executive compensation should be simple. Over simple is not good; but overcomplicated is worse. 

Explaining the core thinking is key. The mechanics are a side show. 

Bad side effects – ESG ignored 

Economic activity has cash and other effects. The accounts reflect the cash items but ignore pollution, worker safety, staff discrimination etc. These Environmental, Social and Governance items are often not even measured. 

If profit is high, big bonuses are on offer, even if other poor effects are seen. This is wrong and so awareness and management of ESG is rising fast.  

Corporate culture and executive compensation must reflect profit delivered in the right way. 

And yet 

While difficult to get right; done well executive compensation adds huge value. 

The compensation committee implications?

  • Decisions need to be well informed and well considered 
  • Judge the wider scene with care, what is obvious to you might be obviously wrong to others 
  • Keep design simple where possible, but do not oversimplify 
  • Explanation is key to acceptance. Review outcomes both in flight and on maturity, adjust where needed 
  • Do not ignore ESG and Climate in particular 
  • Be sensitive to criticism, but avoid excess defensiveness 
  • If it’s wrong, admit error with rational, and explain the correction and future direction 
  • Remain available and accountable. 

Care and sensitivity are central to good outcomes, while this task is difficult – it is not impossible. 

Robert Head

Lead Consultant

Robert works with organisations of all types as a reward consultant or interim reward professional providing reward solutions, interim management and consultancy.

Robert is experienced in working across multiple sectors (including public listed, private equity, commercial, financial, non-profit, and charity).

Robert has deep subject matter reward experience in corporate governance, executive reward, remuneration committees, reward strategy, reward policy, annual bonus, long-term incentives, transformation and change, corporate actions, mergers and acquisitions, and restructuring.

Robert is experienced in stakeholder management working closely with Chairs and executive directors including CEOs and CFOs, non-executive director members of remuneration committees, members of executive committees including business unit CEOs/Presidents, senior HR business partners and other line executives, senior management in other organisations, outside specialists and advisers, and investors.

Robert Head Corpgro

Jane Allen

Lead Consultant

Jane has over 30 years of Reward experience within listed multinational organisations and consultancy environments.

Her expertise covers Total Reward (strategy and programmes), benefits & wellness, pensions, executive compensation, Remuneration Committee support, annual and long-term incentives, VCPs (value creation plans), M&As and restructuring.

Jane has successfully established reward teams and best practices for all key reward processes, leading on complex local and international issues across UK and US listed, family owned, and PE backed ownership structures.

She has a keen interest in ESG and how this can be reflected within Executive Pay to align with the long-term sustainability of businesses. 

Jane is a Fellow of the Pensions Management Institute and a Chartered Insurer. She is an independent Trustee for The Economist Pension Plan.

Damian Carnelll

founder director

CORPGRO is a reward consultancy specialising in executive incentives particularly those connected with growth; and ESG.

Damian has extensive experience advising leading companies on all aspects of executive compensation and equity plans. He was previously with Willis Towers Watson, Aon, and Ernst and Young. 

Damian’s extensive experience in executive compensation and equity plans means he is fully familiar with Corporate Governance norms, institutional shareholder views and proxy voting both advisory and binding.

Damian Carnell Corpgro