Some believe pay should be allowed to rise ever higher because superior CEO performance is maximising shareholder returns
is ridiculously out of line with performance…The deck is stacked against investors.” It was with these words that in 2006 Warren Buffett, a legendary investor and red-blooded capitalist, challenged the received wisdom in corporate America aboutpay. This maintains that bosses deserve generous rewards because these are tightly linked to their companies’ financial performance. Fourteen years’ worth of evidence later the received wisdom is still looking shaky.
Such numbers were setting off alarm bells before the covid-19 crisis. Now the mass lay-offs and bleeding balance-sheets resulting from the recession have brought it into stark relief. According to official filings, one in ten members of the Russell 3000, a broad index of listed American companies, has slashed bosses’ salaries in response to covid-19. They include big airlines , hotel chains and industrial conglomerates . Many others plan to review their compensation plans.
Though these votes are non-binding, managements typically respond to negative votes by paring back pay. Even mainstream investors like BlackRock, a giant fund that rarely gainsays the management on pay, are increasingly voting against compensation-committee members promoting egregious pay schemes.
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