Monday, 2 April 2012

Two bits worth reading, and a nice quote

1. An ace-a-tronic article by ex-Observer man Simon Caulkin on executive pay. This is great, as it delves a bit into the theory behind pay as currently structured, including the motivational aspects of it. A nice chunk towards the end:
"If after 30 years of tinkering the system still can't be made to work, there's something wrong with the initial premise. It's time to accept that both its central elements are fundamentally flawed. Researchers have been saying for years that pay for performance is a snare and a delusion, because the reasons for high performance can neither be isolated nor realistically linked to actions the CEO should be taking. In the FT, Lambert argued forcefully that the whole project is counterproductive, distorting executive behaviour, undermining intrinsic motivation and inciting risk. 'Is it right to think that senior managers are only driven by money and if they don't get what they want they'll go somewhere else?' he queries. 'I don't think so. And if they are, is that who boards really want to run the company?"Link
2. Some nice research (PDF) by the High Pay Centre on the make-up of rem comms. We're getting into really interesting territory now with folks like the HPC starting to look in detail at exactly who sits on rem comms. The next obvious step is to consider how this might affect their decision-making, which the HPC flags up:
when the majority of individuals on remuneration committees come from similar backgrounds it is not surprising that critics of remuneration committees have suggested that they fall victim to “groupthink” where individuals are reluctant to challenge the consensus view. It has been demonstrated by Cass Sunstein that group polarisation can occur, and more extreme decisions are reached, when groups are made up of like minded individuals. This may in part explain why we have seen such a gap between public perception of what is an acceptable level of pay and the current norm in executive pay awards.
Great stuff.

3. I like this quote (from here) from a guy at Cavendish Asset Management which illustrates the value of investors going public in their disagreements with companies (a subject which is close to my heart currently):

"The media was key. We didn't have a big enough stake in the company to vote down the move, but the deal looked so poor we had exert a much bigger influence by talking to the press. That influenced other shareholders and meant the deal didn't go ahead."

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