Friday 4 January 2019 is “Fat Cat” Friday. In just three working days, the UK’s top bosses make more than a typical full-time worker will earn in the entire year, according to calculations from independent think tank the High Pay Centre and the CIPD, the professional body for HR and people development.
The average (median) full-time worker in the UK earns a gross annual salary of £29,574. “Fat Cat” Friday recognises that in 2019 the average FTSE 100 CEO, on an average (median) pay packet of £3.9 million, only needs to work until 1pm on Friday 4 January 2019 to earn the same amount. The £3.9 million figure was calculated by the CIPD and the High Pay Centre in their 2018 analysis of top pay and it marks an 11% increase on the £3.5 million figure reported in their 2017 analysis. The pay increase means that FTSE 100 CEOs, working an average 12-hour day, will only need to work for 29 hours in 2019 to earn the average worker’s annual salary, two hours fewer than in 2018.
The CIPD and High Pay Centre are highlighting the problem of rising executive pay in a new report launched today. The report, RemCo reform: Governing successful organisations that benefit everyone, identifies the shortcomings of the remuneration committees (RemCos) charged with setting executive pay and calls for them to be significantly reformed. In particular, it highlights:
- the myth of ‘super talent’ as a factor that continues to drive excessive pay with one remuneration committee chair commenting: “It’s nuts… and nuts has become the benchmark”.
- how there needs to be much greater diversity among those responsible for setting CEO pay, both in terms of their ethnicity and gender, for example, but also their professional backgrounds and expertise in order to combat ‘group think’.
- how current pay mechanisms contribute to the problem of high pay. In response, the CIPD and High Pay Centre recommend replacing long-term incentive plans (LTIP’s) as the default model for executive remuneration with a less complex system based on a basic salary and a much smaller restricted share award. This would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance.
The CIPD and High Pay Centre are calling for RemCos to ensure that CEO pay is aligned more appropriately to rewards across the wider workforce and that their contribution is measured on both financial and non-financial measures of performance.
Whole story here.
The UK High Pay Commission published its final report, Cheques with Balances: Why tackling high pay is in the national interest, shows stratospheric pay increases which have seen wealth flow upwards to the top 0.1% away from average workers.
It sets out a 12-point plan based on transparency, accountability and fairness.
Merrill Lynch & Co Chief Executive John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered company’s compensation committee is resisting his request. (…)
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill’s compensation committee agree with Thain that the takeover is in shareholders’ best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
Committee members are also weighing the fact that other Wall Street firms, including Goldman Sachs Group Inc, which did better than Merrill this year, are not giving out bonuses to top executives, the paper said.
via Yahoo! News.
CEO superstars aren’t all they’re cracked up to be, argue two UCLA economists in a paper posted to the National Bureau of Economic Research’s website this week
After receiving awards from publications like Business Week and other organizations,
[superstar] CEOs extracted more money from their companies — mostly in the form of stock and options — than their nonwinning counterparts. But in comparison, their companies’ returns and stock performance suffered. (thanks WSJ)
The havoc on Wall Street following the collapse of the subprime-mortgage market boils down to a simple truth: for years, lots of very smart people took lots of very foolish risks, betting borrowed billions on dubious mortgage derivatives, and eventually the odds caught up with them.But behind that simple truth is a more surprising one: the financial whizzes made bad decisions in part because that’s what they were paid to do. (The New Yorker)
If the measure of performance/success is quantitative, can we expect anything else?
“Doing the same thing over and over again and expecting different results.” The very definition of insanity.
With the ouster of Home Depot‘s Bob Nardelli and his resultant compensation package that was valued at about $210 million and Pfizer‘s Henry A. McKinnell’s which came to almost $200 million, it has brought the spotlight on excessive compensation packages for CEO’s.
So far this year it looks like it may become the biggest issue at the annual meetings of public companies. According to Donald Delves, a Chicago-based compensation consultant one positive outcome of all of this is that “There’s a sort of silver lining to the whole Nardelli, Home Depot thing. At least the shareholders finally spoke up.” (managersrealm.com)
1. It’s about time!
2. And what of the Directors who represent the interests of shareholders?