December 14, 2004

CEO performance pay lacks performance

by brian_turner

If you're new here, you may want to subscribe to my RSS feed. Thank you for visiting!

In an article in the Economist, a report by the Hays Group highlights the growing disparity between CEO remuneration packages supposed to be linked to performance, and the actual company performance.

Whilst stock price rises in the 1990’s were clearly coupled with performance-based remuneration packages, even when the stock market as a whole kept falling, US executives were especially receiving bonuses - even when the company’s they steered were failing.

Additionally, there are marked differences between US and European comparisons:

The Hay Group reckons that a European chief executive’s basic salary is much the same as that of his counterpart across the Atlantic. But variable pay adds only 150% to that, as against 400% in America. And far more of the European’s package is in bonuses and free shares linked to the performance of the company relative to its sector or an index, rather than in options which relate rewards solely to the movement of the company’s share price.

Issues of disclosure are likely to help redress the balance in favour of shareholders - the European Commission stated last month that it expects European companies to show all the components of their directors’ fixed and variable pay. And in the US, new accounting rules brought in following the Enron scandal, will now see “expenseh share options liable for taxation, closing a loophole of “easy” bonuses.

Discuss this in the Internet Business forums

Story link: CEO performance pay lacks performance

Add to Bookmarks: