Dear Julia, Exec Pay Has Nothing to Do With You
Dear Julia, Exec Pay Has Nothing to Do With You
Dear Miss Gillard,
I read in this morning’s paper that the Greens are proposing a cap of $2m on executive pay. No doubt you think this is a silly idea. And it is. There has never been a surer way to end up with our best and brightest leaving Australian shores. But it is no sillier than the rest of your hare-brained schemes on remuneration.
We don’t need a vote on remuneration reports. We don’t need a ‘two strikes’ policy and we most certainly don’t need a cap on executive remuneration. In fact, we don’t need you to do anything. We already have all the legislation we need.
You might not realise this but, if we don’t like the remuneration policy our board has set, we can sack them any time we feel like it. All we need is shareholders representing 5% of the company’s shares to call a meeting and put it to the vote. Within two months of calling the meeting, we can have in place a new board and a new remuneration policy.
That’s a much lower threshold than we need to jump to force a meeting under your proposed two strikes policy.
Don’t get me wrong, we haven’t been using our power as much as we should. Some of our executives have been paid millions of dollars for destroying billions in shareholder wealth. Many of the contracts in place are overly generous and provide all the wrong incentives (see Transurban’s $6m toll collector). But that’s our problem, not yours. We already have all the tools we need to do something about it.
Kind regards,
Mr Stockmarket Investor
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PS -- I would like to see much tougher penalties on insider trading, laws on market disclosure and laws on board composition.
again
Kind regards etc
Thats true in theory, but unfortunately mr stock stock market investor does not encompass the super fund manager demographic who don't care how their individual holdings perform (or how much they are paid for destroying shareholder wealth), because all they care about is if they underweighted this particular stock and beat the index.
Until you can solve institutional shareholder apathy, companies will continue to be run for the benefit of board member incentives, not for maximizing (all) shareholder wealth.
A better way would be to give the regulatory powers more bite to step in & eliminate ridiculous remuneration when there is a clear case of shareholder wealth destruction. Like a proxy to make up for all the lazy institutionals so smaller shareholders are still protected.
I don't know. It bothers me that CEO's are paid such extravagant amounts when in many cases they're simply in the right place at the right time and plain old luck is responsible for increasing profits. I agree salary caps aren't the answer, but neither are the feeble shareholder protection laws we currently have.
It's not as cut-and-dried as this. Granted shareholders already have the power to force change. But it's so diffused that individuals don't have much of an incentive to use it, with the result that there's some poor operators still hanging on in Exec-land.
JG's idea might be a stinker but there is a problem there that needs addressing, and the status quo isn't doing it.
I agree lazy institutional shareholders have a lot to answer for, but I think the little guys can do more.
What are the prospects of us organising so we have more influence - maybe through an Australian Shareholders Association style of organisation? I don't recall ever seeing any mention of ASA in the II fora. What experience or opinions do II members have of ASA
"Be thankful we're not getting all the government we're paying for." Will Rogers
I think the Greens & Prime Minister are probably just trying to stir up more class envy, BUT I fully support the need to reform a corrupt system. To my mind the corruption lies in the voting system, in that most of the votes for board members (who form the remuneration committees)are not the votes of personal shareholders. These votes are from insurance companies, large super funds, investment companies, etc. Essentially the "director class" are setting the pay scales for themselves, and the owners get almost no say. If I had my druthers all votes by individual shareholders would count at AGM's and the others could be apportioned as determined by canvassing the individual views of the members of the insurance co's, super funds, etc.
The extreme executive salaries will always attract jealousy in a democratic society. However, the capacity for managers to vote shares which they do not own personally, leads to an unending escalation in salaries/bonus/gratuities without consent of shareholders. Reform the voting system, and problem will solve itself.
A follow up to Lui P's comment. I'm a member of the Australian Shareholders Association and almost always send them my open proxy for company meetings. They can exercise some influence and the more proxies they hold, obviously the more clout they have. Everyone should join that organisation or at least nominate them as your proxy. All that requires is filling in their full name (not just ASA) on the proxy form and returning it to the share registry - and that is usually in a reply paid envelope so it costs you nothing.
What absolute nonsense. When was the last time that shareholders sacked a board and put in place a new remuneration policy ? In the meantime, some of the board members who drove the Coles bus into a brick wall have resurfaced on the AMP board. Talk about a gravy train with no performance hurdles.
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