Executive salaries are determined by supply and demand. It's not a conspiracy
- Johann Redelinghuys
- 30 Mar 2012 12:11 (South Africa)
All over the world there is a short supply of people like Marius Kloppers, Whitey Basson, Stephen Koseff, Jacko Maree and Graham Mackay, among others. They create employment for thousands and carry the responsibility for making a profit in companies with assets worth billions of dollars. They sometimes have to turn unprofitable companies around, and if they fail, they get ditched. There is great demand for people who can do what they have to do. On the other hand the world is full of the “general workers” who depend for their wellbeing on these job-creators and big business risk takers. There are so many people in Cosatu’s “general worker” category that the world has a major unemployment problem with them.
The supply-and-demand-model is not rocket science.
Top quality CEOs can make a living anywhere they choose.
We only have to look at in our own backyard at what happens to perfectly viable companies when the reins are given to people who are not up to the job. Good leadership is a scarce resource.
Does Craven also think that other international commodity markets like oil or gold, which are regulated by supply and demand, are “unfair”?
The frequent media outbursts about executive compensation may seem to suggest that there is an executive compensation conspiracy operating in the market. They think that somehow the fat cats get together and decide to give themselves the big bucks, and then undercut the people who are in the lower ranges of the employment chain, the “real workers”. Feeding into this is the belief that the workers are the exploited victims of an evil system, and that they are “entitled” to a better life. It is this never-ending sense of entitlement and dissatisfaction that is driving the endless toy-toying protests.
Remember that when a CEO is appointed, and a compensation package is agreed, a proper negotiation takes place and no one holds a gun to the head of the company. In a listed business there is usually a nomination committee or some other committee of the board which oversees the appointment process. They are not forced to do anything they would choose not to do, and these days the whole thing is subject to the transparent scrutiny of the board. Boards usually have a remuneration committee which has to lay its compensation practices on the table at the AGM for any stakeholder who wants to respond to them.
The most common “package” consists of a base salary, a bonus based on performance and some form of share participation. When Cosatu sees the big numbers, it is usually when a CEO has increased the value of the company, and benefits from a pay-out of the value of the shares on top of the basic salary and performance bonus. Cosatu members need to be reminded that all this is in accordance with international governance standards.
Adcorp’s new quarterly “Labour Market Navigator” claims to have a formula where a CEOs salary is evaluated in relation to the company’s financial performance of the last year. But some companies may take several years to be turned around or may decide in one year to focus on sustainability instead of financial performance. Should the CEO then be penalised? Of course there should be an element of compensation based on performance but this radical method of evaluating performance sounds as if it needs some careful further thinking.
Yes, there is greed, and we only have to listen to the damning comments of someone like ex-South African Greg Smith, who recently blew the whistle on what he described as “the corrupt practices” of the partners of Goldman Sachs, to know that some people exploit their companies and abuse clients. But the ethics and moral conduct relating to outright corruption are a different issue to the executive compensation which has been agreed by the board.
Cosatu’s outrage and its silly egalitarian argument pointing to the “unfairness” of some people earning huge amounts of money and others not, suggest a one-sided understanding. Why then must some people live in big houses and others not? Or why must some drive fancy cars and others not? Is the SACP contingent in Cosatu having difficulty with the fact that we live in a meritocratic capitalist democracy? It’s interesting to see how many ardent trade unionists, which used to be on the side of the workers, become big-spending, high-living capitalists when the “tender-entrepreneur” opportunities present themselves.
We know, to be fair, that this is not only a South African issue. Our partner in New York says: “Over the past three decades executive pay has risen dramatically beyond the rising levels of an average workers wage”. But again, the key factor is the supply and demand in the market. We could easily say that in the past three decades, the number of average workers has increased substantially and the number of top-level executives has not.
- Suspect mayors – at the heart of poor service delivery
- Capitalism on the skids
- The land issue - and the hooligan now in Parliament
- World Soccer: Combating corruption from the bottom up
- Marshalling our post-executive network
- SAA’s Board is a festering sore
- IQ: Outdated, irrelevant, in need of review
- Leadership’s lack of wisdom
- Inequality: the eternal conundrum
- Wake up, Irvin Jim – it’s 2014
- The dark side of the Eskom boardroom power struggle
- A faultline in the psyche of the nation’s men
- Twenty years on, the ANC is still not ready to govern
- Universities should not be state-controlled institutions
- Do race and ethnicity still override intellect and good judgement?
- Millions of ‘job opportunities’? Pull the other one!
- Hands off? Brian Joffe is faking it
- Should the workers have a voice on the board of directors?
- Time for the minister of police to hand in his resignation?
- More freelancing means fewer jobs
- The wealth gap and inequality cannot be ‘fixed’
- Is there a military option for school leaver unemployment?
- Retire the idea of retirement!
- The textbook, talented leadership of Mr Julius Malema
- The down – and up – side of recklessness and greed
- Race and gender issues: not going anywhere
- Sloppy board governance: Failing South Africa’s critical executive leadership
- Low efforts, low satisfaction: Combatting the new workplace epidemic
- Shame on the racist rant from the Black Business Council!
- The visits of French president and Polish prime minister: a scattering of welcome fairy dust
- Uncomfortable questions about Sasol’s hired gun
- Manufacturing is not our route to riches
- The Minister is chasing away jobs!
- The Age of the Sovereign Individual is upon us
- ‘I applied my mind’: a welcome comment from the President
- Stressful news about executive stress
- The comic opera at the SABC board plays on
- The right way is not always the best way
- Double benefit of focus on farming
- Indecision is crippling us
- An ‘African MBA’ would be a mistake
- The inequalities of the wage gap won’t go away
- Privileged access: no longer just for the top dogs
- Are there different degrees of CV fraud?
- Is the ‘born free’ generation really so free?
- Labour Brokers are here to stay
- Unemployment can be beaten
- Top CEOs are feeling the pinch
- Performance anxiety: The curse of our time
- Black Economic (Dis)empowerment: It’s time to rethink our strategy
- Why mobile phones are more important than toilets
- She was a lady with a vision
- South Africa should beef up its strengths
- Jacko Maree has failed in the most important task of a CEO
- Bridging the gap: Time to embrace immigrant skills
- Gender diversity on boards still undermined by stereotyping, male-dominated networks
- Be careful what you wish for
- Please stop the mindless nonsense of trying to ‘create’ entrepreneurs to satisfy some extravagant political agenda!
- The heavy hand of government is everywhere
- The good people at Standard & Poor's may not be aware of all our resources
- Our systems of education and first-rung employment are broken
- Only disruptive leadership can achieve real change
- 'Shooting from the hip' is now the norm - and deeply damaging
- Our leaders' confused moral compass
- Government ownership: Watch out for the collapse of independence
- US and South Africa: Leading in disaster and disastrous leadership
- CEO departures and the 'perfect storm' in the boardroom
- You can't play the 'happy game' without hope and expectations
- A major leadership resource, ignored in the new South Africa
- The value of the people who create value
- Living the paradox: Life in South Africa
- A leader without a vision gets nothing done
- It’s spring! It's a good time for cleaning up our act
- So, do we want to be a global player or not?
- Big business: A critical piece missing from Manuel's plan
- Enduring values cannot be legislated
- Being a CEO - and playing the leadership game - is tough
- Career Management 101: Don't send a CV!
- The shifting sands of executive payouts
- The Perils of “Young Blood”
- Gender Diversity: Good for Business
- Nationhood: Our fragile national self-esteem
- Employment: Make Peace with the Gig Economy
- Crime is not the real fear of white people
- Dilemmas of the South African Diaspora
- Be careful what you use to vote for whom, and when and why
- Golden Schmolden Years
- Beware the Psychopaths
- Executive salaries are determined by supply and demand. It's not a conspiracy
- Reckless transformation is doing great damage
- Listen and stay close to your stakeholders
- Career Management 2020
- The New Non-Executive Director
- Working on a resolution toward a 'portfolio life'
- Facing the dilemmas of succession
- The misguided notion of 'job creation'
- High CEO turnover and the role of the chairman
- Life starts at 60, and not only for Alan Knott-Craig
- African leaders are misguided when they try to hold on to Africa for the Africans