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Should the Stock Market Worry About CEO Compensation?

10 July 2007 - Features - Editor

Nothing gets the collective stock market goat more than stories of extravagant executive remuneration. Traders and analysts may differ on all kinds of issues, but there is becoming unanimity when talk veers in the directions of bulging pay-packets, bonuses out of proportion to performance, and the high-flying styles of well known figures from the professional world. Trust is at the heart of the stock market model, and most financial circles are not especially known for uncontrolled belief that others will use our precious funds with unvarying integrity!

Politicians and bureaucrats determine much of stock market thinking with respect to executive remuneration. We may suspect them of making monies on the side, but most of them earn small official amounts compared to the darlings of the stock market environment of profit-making corporations. Perquisites and remuneration are not easy for investors outside the power breakfast and company jet circles to understand. There are widespread if not openly expressed doubts that executives abuse their supposed business-related privileges.

Dimensions and priorities are formidable enemies of searching enquiries by any stock market in to executive remuneration and perquisites. Imagine that you squeeze in to an interaction session with executives responsible for a multi-billion dollar enterprise: they are in an inevitable hurry to get to the next meeting-do you ask them about salaries or strategies? Besides, most of them could talk you in to anything, so pointing out possible excesses in their own self interests is next to impossible!

Some conservative stock market quarters believe that probing and persisting with executive remuneration issues are worthwhile because of the domino effects of excesses at the top. There are inevitable comparisons with the top dogs throughout any organization, so you can hardly expect thrift in the rank and file if leaders are paid exorbitant amounts.

The stock market is about results not justice. So, while there could be any number of arguments to support moderation in executive remuneration, the fact is that the demand and supply balance is tilted against you when it comes to landing the best fish in the water. Top quality executives are a rare breed, so it is better to overlook any alleged excesses in their personal lives as long as they produce consistent results. That is the reality of free enterprise!

Do write in and let us know your views, especially if you know of any success stories in holding down executive remuneration without losing valuable talent in the process.

 


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