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Should executive pay be legally limited?

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  1. #1

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    Should executive pay be legally limited?

    As will hopefully be done in Switzerland?

    http://www.bloomberg.com/news/2013-0...b-ceo-pay.html

    Or should they earn as much as they want?

    What do you reckon?


  2. #2

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    I guess they don't like having companies in Switzerland!


  3. #3

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    This is a tough one.

    The problem with limiting pay is that it limits the flexibility of companies to do sensible things - one of the ones quoted in the article about paying a former CEO to prevent him going to a rival, for example, may be a perfectly sensible business decision that is worth millions.

    On the other hand, there does seem to be evidence of excess and it's hard to see why exec's really NEED to earn multi-millions! Australia deals with this problem differently - they just have swingeing tax rates which mean even if you earn megabucks, vast amounts of it then gets recycled back into the economy through taxes. Unfortunately that most results in high earning individuals spending a huge amount of time trying to avoid tax and has other unintended consequences. No doubt this rule will just result in the same - everyone trying to find the loopholes rather than focus on running their companies!

    I don't know what the answer is. If anyone told me I was unable to make those kinds of decisions in my company (which I also own a big share of) I would be furious. At the end of the day SHAREHOLDERS should be the ones making these decisions, not government.


  4. #4

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    They don't like wasting money on managers.

    I think they still haven't gone through bailing out UBS, and then seeing its useless managers giving themselves huge packages for nearly bankrupting the bank.

    Last edited by cheepo; 04-03-2013 at 10:42 AM.

  5. #5

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    You can't legislate this stuff. We are faced with a new reality in the evolution of entitlement.

    It used to be the major unions around the world that were in many cases rightly accused of an entitlement mentality as they used to grind employers even if they knew they couldn't and wouldn't pay. Now it seems it's just some French unions and the one in the USA - Hostess Brands -if we can believe the company line.

    Entitlement is rife in executives in major companies and the unions now reasonable.

    This stuff around the globe is beginning to get alarming. The number of good jobs is not growing while the economy is still shedding jobs due to technology and will keep doing this until 2030 or longer.

    This is some US union figures:

    The ratio of CEO-to-worker pay between CEOs of the S&P 500 Index companies and U.S. workers widened to 380 times in 2011 from 343 times in 2010.[2] Back in 1980, the average large company CEO only received 42 times the average worker's pay.[3]

    CEOs supposedly deserve all this money for increasing shareholder value. However, while the average CEO pay increased 13.9 percent at S&P 500 Index companies in 2011, the S&P 500 Index ended the year at the same level as it started.

    This double-digit increase in average CEO pay for the second consecutive year shows just how disconnected the top 1 percent is from the 99 percent. In 2011, average wages increased just 2.8 percent and average worker pay totaled $34,053.[4]

    Both workers and shareholders have suffered over the previous decade. On Dec. 31, 2010, the S&P 500 Index closed 19 percent below its high on March 24, 2000. U.S. median household income fell $3,719 between 2000 and 2010.[5]

    Runaway CEO pay is one reason why income inequality is growing in the United States. A Congressional Budget Office report found that inequality has risen dramatically, with the top 1 percent receiving most of the income growth between 1979 and 2007.[6]

    What's more, a new study by economist Emmanuel Saez at the University of California shows that in 2010—the first year of the economy's recovery from the Great Recession—the top 1 percent captured 93 percent of the growth in income.[7]

    http://www.aflcio.org/Corporate-Watc...nds-in-CEO-Pay
    A good read when u have time -

    Saez:

    http://www.nytimes.com/2012/04/17/bu...anted=all&_r=0

    Stiglitz
    http://www.vanityfair.com/politics/2...-on-inequality
    Last edited by Football16; 04-03-2013 at 11:27 AM.
    MovingIn07 likes this.

  6. #6

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    You can legislate it by giving more power to the shareholders to determine (limit) the pay of the managers? I believe this is the direction some countries are going.

    I think you should also let the employees have a word. After all, they know how well the company is run. This has to be legislated, unless you expect the managers to do so voluntarily. Might as well pray for rain.


  7. #7

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    Quote Originally Posted by cheepo:
    You can legislate it by giving more power to the shareholders to determine (limit) the pay of the managers? I believe this is the direction some countries are going.

    I think you should also let the employees have a word. After all, they know how well the company is run. This has to be legislated, unless you expect the managers to do so voluntarily. Might as well pray for rain.
    I doubt very much that employees should be consulted on executive pay, because the jealousy factor is just too large and some employees are not aware of value to the company - they just see "asshole to work with" but not the whole picture.

    However, what employees COULD do it upward reviews of managers, that would then feed into the whole salary debate along with other information.

    I agree with TB's suggestions re strengthening the role of shareholders. That puts the decision into the right place but it does require shareholders to take a more active role.

  8. #8

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    Original Post Deleted
    which is pretty much what the Swiss voted for this weekend.

    Bloomberg is misrepresenting this story a bit, though i guess they just reiterate what the pro-politicians were saying within Switzerland to get out a majority vote.

    at the end of the day, this new constitutional clause (which will only come into effect once the parliament has passed the respective laws - which could take up to 4 years) is all about strenghtening shareholder democracy. not much wrong with that, me thinks.

    the only restrictive terms were the prohibition of paying sign-on and leaving bonuses for senior execs. while the Swiss didn't like these restrictions (since they are typically a fairly economically liberal lot), it was a small price to pay to get shareholder democracy established in one of the few countries in the world that successfully practices direct democracy