From: Charlie Stross (charlie@antipope.org)
Date: Sat Sep 01 2001 - 03:09:36 MDT
On Fri, Aug 31, 2001 at 10:42:59PM -0700, Olga Bourlin wrote:
>
> What would the libertarian solution be for something like this? (Is there a solution?)
>
> Experience says some of you readers are rock-solid in your conviction
>that executives earn every dime they get. But those inside see it
>differently. A Fortune article earlier this summer, examining the process
>that rewards CEOs, draws a picture of compensation committees largely
>controlled by the executives themselves -- and compensation consultants
>who feed the fires.
I'm currently involved in a start-up that's in its fund raising cycle
at present. (Last years' was a failure; it's a bad idea to try to
start a software company that needs US $900K of seed capital in the
middle of a market crash. We had two VC's declare their undying
love for us, pledge their all ... then go bankrupt before said funds
appeared in our bank account. But I digress ...)
Here in the UK, pay stratification is a hot-button news topic -- "fat
cat" bosses are not popular, especially when their fat pay awards are
combined with pay freezes lower down the organisational ladder, not to
mention big losses and redundancies.
Following a couple of enquiries over the past decade, something called
the combined code has emerged -- combined from the Cadbury code and
the Greenberg committee code. It's not legislated, but a company that
wants to go public on the London stock exchanges needs to be compliant
with it or investors will be less than enthusiastic and some brokerages
will refuse to underwrite them. The combined code is fairly simple:
* The job of the directors/managers is to run a corporation for
the benefit of the shareholders
* Directors cannot and must not set their own pay
* Non-executive directors may be elected who will be responsible
for setting the pay of executive directors
* Executive directors can set the remuneration of the non-executive
directors
This isn't 100% satisfactory -- it permits back-scratching -- but it
ensures that the appointment of the people who set the executives' pay
must be voted on at the corporation AGM, which gives the shareholders
a way to express their displeasure.
I'd be happier if it was a three-level indirection -- i.e., there
was a third category (pay set by the non-execs, their job being to
set up the execs, also subject to veto by shareholders) in the loop
to prevent cronyism. But it seems to have controlled some of the worst
excesses. Note that I say "seems"; latest word is that the rich/poor
income gap in the UK has widened considerably under the Blair government.
(In case anyone out there still thinks Tony Blair is a socialist, it's
kind of hard to reconcile socialism with social elitism -- and he's much
more into the latter than the former.)
-- Charlie
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