Letter: Executive perks
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Sir: If share options are a virility symbol ('Boardroom hunt for new executive virility symbol', 16 February), then companies that offer them willy-nilly are likely to get directors who focus on virility-oriented goals (eg, empire building and other objectives unrelated to shareholders' interests).
The root of the issue is the mantra of 'aligning executive and shareholder interests'. Having recited it, there is often sloppy, if any, analysis of how to accomplish this. Saying it will not make it happen.
What has to be done is to recognise that executives have to act like shareholders, ie, take a risk. Executives should be risking their own money as shareholders risk theirs. This means a greater proportion of variable, performance-related remuneration (whether it is cash or stock-related instruments). Risking the shareholders' money without risking their own leads executives to make decisions of highly variable quality.
PA's survey of remuneration practices and performance of the top UK companies amply illustrates the point. Companies with a high variable/low fixed remuneration achieved returns on equity of 22 per cent, whereas the low variable/high fixed companies yielded just 4 per cent.
As returns on equity are the basic driver of shareholder value, shareholder activists should insist on executive remuneration contracts that promote their interests (rather than provide perks unrelated to performance). They should not listen to the siren voices that talk about 'the market'; 'the market' is the excuse of those who envy, not those who have the talent to perform.
Yours faithfully,
JULIAN BURNETT
PA Consulting Group
London, SW1
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments