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Comment - The economy


Are CEOs thieves? by David Flint.

We all know that CEO pay is outrageously high and completely out of control. If you listen to the BBC's More or Less you'll know that the Swiss financial research firm Obermat has shown that CEO pay does NOT reflect company performance. That is, highly paid CEOs are not paid a lot because they have created big profits for their firms. The research shows that for the 100 largest UK firms, the 'FTSE100', less than 1% of CEO pay is due to performance.

So what does determine CEO pay? Research by two Swiss academics is very informative. They find that it's a matter of power. The less power shareholders and other directors have the more the CEO is paid. So simple. CEO pay is an exercise in grabbing, not in rational incentive-setting. Legalised theft in other words.

CEO pay, and top executive pay generally, is a walled garden isolated from the wider world of work and pay in which highly-paid current and former top executives set each other's pay. No wonder it's out of control.

And one more thing. The Obermat study also shows that giving shareholders votes on pay won't fix this. So that's thumbs down for another dumb Coalition policy.

First published in the EGP members newsletter, June 2012



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