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May 08, 2012


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Paolo Siciliani

Agree, what you need is consumers, not shareholders, penalising firms with high pay disparities among employees, period. This is what the "Left" should focus on, to develop a credible public signal that could be relied upon by consumers to raise pressure on this, similar to corporate-social-responsibility (like a fair-trade certification). This is not at all easy, as with business-to-business transactions customers are not final consumers (same goes with outsourcing), but all this difficulties would not be insurmountable if there was strong political will.


Quite a few objections to this:

First, are we sure that managerial talent is vanishingly scarce? Given that the profitability of the company depends on so much more than the CEO, why should we worry if he or she is at best of median ability?

Second, if we accept that our CEO is competent but no genius, we'll be more interested in structures that shore up his decision making. That is, more democratic structures; and the CEO may be more willing to take advice.

Third, if the CEO pay is lowered, the CEO will have to find some intrinsic motivators, since money is less of one.

Fourth, in some companies the pay of higher management is comparable to the profits; cutting managerial pay will provide more profit for the company to invest.


@ William - I entirely agree that more democratic sructures might well lead to better-run companies, but I don't think shareholder activism is aimed at creating such structures.
And it's not unreasonable to suspect that lower pay - which can only come about through other radical changes - might be accompanied by othe motives; whatever happened to professional pride?

Account Deleted

Shareholders are (by holding) mainly fund managers, not small investors offended by excess. They are not objecting to high executive pay (of which they are themselves beneficiaries) but to falling share prices and low dividends. They will expect the new broom to sort out the business and boost earnings. For this they will happily pay the going rate.

Though both under and over-performance may owe more to the economic cycle than the CEO's talents, fund managers are obliged to give the impression that their own intervention does make a difference, as otherwise there is no justification for their own fees and remuneration.

Will Davies

There's another factor here: the privatisation of pensions and the introduction of tax advantaged savings schemes such as ISAs. The shareholder value revolution was *supposed* to be democratic to the extent that we have all been dragged increasingly into (indirect) equity ownership. This doesn't negate your macroeconomic point of course. But it was intended to signal a new form of investment and remuneration for the masses, not just the managers.

One question for the left is whether this would ever have been a desirable state of affairs (i.e. if it had in fact been realised). There are at least two reasons why the answer is 'no'.

Firstly, lower income people have less disposable income to put into equity-based investment schemes, be they pensions or ISAs. So even if (say) the top 70% had benefited from this shareholder democracy, that's not equality; the same injustice played out with the housing market.

Secondly, for orthodox Marxist reasons, these profits that might have ended up in our hands were produced by us in the first place, or more likely, Chinese proles. So why not distribute them within the firm, rather than via the very wasteful financial circuits of London and New York?


Really, there shouldn't be shareholders. Companies should be nationalised.

Tim Newman

If CEOs have only a minor influence over the fortunes of their companies as you claim, then all it takes is for one or two companies to realise this, promote a junior manager on a few grand a year to CEO, and pocket the savings. For good reason, this doesn't happen. Whereas I can believe CEO performance is not as important as they like to pretend, I think you might be underestimating their effect.


Directors in theory are ssppoued to bring a specific skill set to a board, be it an expertise in the company's industry, be it finance expertise, be it M&A expertise. So a best of breed board without getting into their share ownership is a mix of the above. It is doubtful you would find these skill sets in what you call either an employee director or owner director.I agree, many independent directors although bringing skills to the table are part of an old boys club which is problematic. Also, in most cases they are already financially secure and have little skin in the game and rely on stock options and director fees for any income from that company.You say a director who is an employee with minimal ownership actually has interests that are opposed to those of shareholders . In my opinion, assuming the employee had a skill set to bring to the board, I would say having interests opposed to the shareholders would probably be a good thing. What do most shareholders want? I would say most only care about a large profit as fast as possible, only so many are true long term holders. Thus, an employee who did not really care about short-term stock gains would probably be an asset. For owner shareholders, you say their interests are aligned. I could argue they are only aligned for short term gains and if the owner manager can capitalize short term they may not really care long term.

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