We will have Mr. Trump as our next president precisely because voters thought that the economic and political systems are rigged against them. That this “feeling” is based in fact should give pause to those currently excoriating Trump voters for voting against their own financial interests.
A Financial Times (London) report on a Lancaster University Management School study, said in part:
“The correlation between high executive pay and good performance is “negligible”, a new academic study has found, providing reformers with fresh evidence that a shake-up of Britain’s corporate remuneration systems is overdue.
“Although big company bosses enjoyed pay rises of more than 80 per cent in a decade, performance as measured by economic returns on invested capital was less than 1 per cent over the period, the paper by Lancaster University Management School says.
“Our findings suggest a material disconnect between pay and fundamental value generation for, and returns to, capital providers,” the authors of the report said.
“In a study of more than a decade of data on the pay and performance of Britain’s 350 biggest listed companies, Weijia Li and Steven Young found that remuneration had increased 82 per cent in real terms over the 11 years to 2014.
“Much of the increase was the result of performance-based pay. But, the report’s authors say, the metrics used to assess performance — such as total shareholder return and earnings per share growth — are unsophisticated and short-termist, acting against the interests of long-term investors. The research found that the median economic return on invested capital, a preferable measure, was less than 1 per cent over the same period.”
What is true in the UK is more than true in the U.S. as we are the leaders of this “the CEO is King/Emperor” movement. Like all of the other propaganda, black is white (and vice-versa). CEOs claim their compensation is “performance-based,” which it clearly is not as they have rigged the system by defining “performance” in a way that results in raises for themselves but no one else. When people hear that CEO salaries are “performance-based,” they assume the huge salaries and retirement programs CEOs “earn” are warranted because they don’t think to ask for the details. Well, the details are now out in the open and “the King/Emperor has no clothes” or any other kind of protective cover.
I am declaring that it is not open season on CEOs (no, not the Second amendment kind), but let’s see how many we can take down.
Since the CEO’s aren’t doing much for those gaudy salaries, one approach would be to fire them and ask the First Vice-CEO if he would like the job at half of the current CEO’s salary. I suggest no one will hear the word “no” to these offers. If the performance of that CEO is as abysmal as the one’s now, then fire that replacement and ask his second in command if he would like the job at half of his superior’s salary. If this doesn’t result in superior performance, it will certainly reduce overpayment of the CEO.
And, this is just a manifestation of the “disruption” all of the business experts say is so good for the growth of companies, just applied to top management … for once.