Wednesday, March 18, 2009

Executive remuneration

Here are the Terms of Reference for the Productivity Commission inquiry into executive remuneration in Australia.  It is a sensible inquiry because remuneration practices are part responsible for the excessive risk-taking and greed that has led to the current financial mess. 

My kneejerk reaction - the type of reaction that this inquiry hopes to forestall - is that remuneration decisions should be approved by the owners of a firm - its shareholders.  If these shareholders are too penny-pinching the firm's fortunes will suffer. 

But at least we won't have the old boy's club plotting organised theft of shareholder funds under the business-school-driven myth that huge payments are essential to 'allign' the interests of third-rate business thieves with those of those who employ them, their shareholders.  Whatever happened to old-fashioned morality and the desire to maintain a decent reputation?  I assume the business schools see such issues as irrelevant if you can devise a clever enough incentive contract.

Shareholders should call the shots and bear the consequences of doing so.

I'll follow the PC deliberations and change my views if they provide effective counterarguments. I'd be interested if readers could think of sensible counterarguments.

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