At 09:24 22-7-01 -0500, Erik Reuter wrote:
>On Sun, Jul 22, 2001 at 03:40:36PM +0200, J. van Baardwijk wrote:
>
> > In the last few years, the top management of large companies in The
> > Netherlands have received an awful lot of criticism because of the
> > outrageous annual pay raises they give themselves. Those managers'
> > salaries are already measured in millions of guilders, but raises of
> > 20%, 30%, or in the case of ABN-AMRO (a major bank) even almost 50%
> > (!) happen every year. At the same time, these same managers call in
> > unison "we can't afford that" or "that would hurt the economy" when
> > the unions want a mere 3-4% raise for the workers.
>
>I've been thinking about this issue recently myself. What do you think
>should be done about it?
<snip>
>1) There needs to be a well-researched way of evaluating the performance
>of the officers of companies. Some system that is respected and can
>be applied by the board of directors or their agents to determine the
>value of a CEO. This seems rather obvious, so perhaps accountants have
>written books on it already? If so, why isn't it better applied?
I'm not familiar with such systems, but I can imagine it would be difficult
to determine things like "how much did this CEO's efforts contribute to our
profits". Not the most workable solution, IMO.
>Are the officers usually buddy-buddy with the board of directors?
Since this is a case of highly-paid people appointing other higly-paid
people, yes, I think it's safe to assume the officers usually are
buddy-buddy with the board of directors.
>2) What about not paying officers any salary at all, but rather just
>paying for performance (i.e., profits). This could be done with stock
>options, bonuses pegged at a percentage of profits, etc.
Sounds like a good incentive. Higher profits --> better pay. Only problem
is: what to do when the company makes a net loss? Let the CEO pay the
company for his incompetence? (Now *that* is what I call an
incentive! <grin>)
>3) How about having public companies disclose salaries and compensation
>for everyone, not just the officers?
I don't think that will be very helpful, since it's the officers who get
the huge raises, not the workers.
>4) Should it be easier for shareholders to sue the board of directors
>when the board is negligent in choosing the officers or in determining
>their compensation? Maybe shareholders should pressure the board to
>always have a shareholder vote to determine officer compensation?
Rather then being able to sue the board members, wouldn't be easier if the
shareholders could simply kick out any incompetent board member of officer?
It would also be a good idea to let the shareholders, or perhaps even the
workers, determine an officer's salary -- that way he won't get a huge
salary just because he's a friend of someone on the board of directors.
How about option #5: everybody, from the cleaning lady all the way up to
the president of the board, gets the same raise. If the workers get 4%,
then the management also gets 4%. It prevents the management from excessive
self-enrichment, and might lead to somewhat higher raises (say, 5-6%
instead of 3-4%).
Option #6: link the raises for the officers to the increase/decrease in
profits. If the company made 7% more profits this year, as compared to last
year, then the officers get a 7% raise. This must be applied in the other
direction too, of course: if the company saw a 7% drop in profits, the
officers' pay also goes down 7%.
Jeroen
who is looking forward to his 4% raise in October.
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