NOWHERE was global anger about excessive corporate remuneration more visible than in the attack on the home of former Royal Bank of Scotland (RBS) boss Sir Fred Goodwin earlier this year. It was one of the examples of the sharp focus placed on financial rewards for business leaders.
It's easy to get upset over excessive pay for executives, especially in cases such as those of Sir Fred and US insurance company AIG top brass. These people ran their companies - one might even say, entire economies - into the ground and were handsomely paid to do so. Even worse, even after the global bombshell was detonated, they still collected.
In Sir Fred's case, there was widespread public and political anger over a pension payout worth about £700 000 a year to the 50-year-old former CEO. He took early retirement from RBS in 2008 after the bank needed a £20bn bailout from the British government. RBS made a loss of £24,1bn in 2008 - the largest annual loss in UK corporate history.
In the US, the disgust over executive bonuses came to a head with the news of a $165m bonus payout that would go to AIG executives despite the company having been bailed out by the US Treasury for massive amounts. The US House of Representatives immediately moved to pass legislation that would tax the bonuses out of existence.
The legislation would levy a stiff 90% tax on bonuses paid by any financial firm receiving more than $5bn in federal funds from the Troubled Asset Relief Fund (Tarp). AIG executives said they had been receiving death threats, and were living in fear.
Kernel of truth
But the outrage seems to have died down, and some banks are even repaying Tarp funds so that they can go back to dishing out bonuses. A recent Bloomberg News report said Wall Street insiders expected the US government to loosen compensation caps from banks that received taxpayer aid - only three months after Merrill Lynch's $3.6bn in bonuses drove congress to impose these caps on executive pay.
Bloomberg reported: "As some companies prepare to repay Tarp funds and free themselves of limits on compensation, those that cannot, argue that they should not have to comply with limits on pay that will leave them unable to hire and retain their best employees."
One may want to smirk and even laugh out loud at this reference. What, do they mean the same pinstripe-suited guys who thought the US housing bubble would never burst and that lending to uncreditworthy customers could therefore continue to explode?
But there's a kernel of truth in what the executives are saying about needing good compensation to draw talent. It's an inescapable fact: talent will go where the money is. In all the fuss and outrage over the excessive bonuses bankers and insurance executives received, that point is being forgotten. And that applies to companies other than banks as well.
But there's been a problem in that lucrative executive pay packages haven't always been linked to good performance. Finweek's Bruce Whitfield did a cover story (Fat cats cut down to size), saying that local investors have become uppity about remuneration packages for directors.
Beady eye needed
That's a good thing. But that shouldn't detract from the fact that talent - when it works hard - should be rewarded. In SA, where skills are in such short supply, it probably means some people will have to earn massive pay packages just to keep them in the country.
This may seem obscene to some - and the unions (both Cosatu and Solidarity) have in the past had a lot to say about the large pay gap between executives and workers. In 2006 the department of labour even said income disparities were a factor behind pay-linked disputes.
To many, the inequalities in SA are repugnant; the high pay earned by executives, which entrench these inequalities, are equally so. But SA is in a bind. Its skills shortage can't be overestimated, and the fact is that highly skilled people need to be remunerated accordingly. Without skills, there would be less growth and less revenue for social transfers.
Defending high pay packages for skilled executives is not the same, however, as condoning the excesses that brought the global economy to its knees. The key there is for regulators to be paid more, so that the people watching the bankers are as skilled as they are.
While recent trends in the global economy have severely harmed the case in favour of lucrative pay packages for top executives, there's no escaping the fact that these are needed. They just need to be better monitored by shareholders and regulators.
- Fin24.com