The problem with Labor’s attempt to control Directors’ remuneration
Labor’s move to compare CEO pay to Staff pay as a ratio, is simply a populist move to show how they will rein in ‘excessive’ CEO and Directors remuneration. It will achieve nothing.
Other than satisfy the misguided socialist notion that egalitarianism should exist in corporate structures. It is a poorly considered and useless metric, that will achieve nothing.
Investors are far more interested in the performance of the CEO and the productivity of other key people. If these people are meeting their targets and growing shareholder value, why not reward them accordingly? Neither over nor under, what is commensurate with their performance.
In our projects we publish scorecards that make visible the contribution of the CEO and managers in 3 main areas – operations, sales and finance – by calculating a percentage score of actual performance to target.
- The CEO should be responsible for performance to target for the company’s Enterprise Value (“EV”).
- The Sales Manager, repeat sales and sales growth.
- The Operations Manager, cycle time and error rates.
- The CFO, cash conversion cycle times and free cash.
If a CEO is meeting targets on EV, and his team are meeting theirs, then what is the problem with making their pay commensurate with this?
If the Production Manager is producing the goods on time and defect free, then reward him appropriately.
If the Sales Manager is consistently growing revenues, again publish this and reward her.
And they will only reach their targets on a sustainable basis, if the workers are paid fairly.
Good old fashioned accountability and transparency will produce far superior business outcomes and shareholder value than will Labor’s nonsensical attempt to make us all equal.