The Sustainable Economy Act, which came into force on the 6th of March, has introduced an obligation for the listed companies to annually release a report about the retributions earned by CEO’s and to submit it to the counseling vote at the general shareholder’s meeting. In my opinion, this piece of legislation proves the necessity to deal with one of the company matters which has generated more controversy over the last decades and on an international level. Moreover, the financial and economic crisis that we are going through has reinforced the general interest in this matter. Specifically, one of the most significant and attention driving issues mentioned in the press as well as in public opinion, are the excessive retributions received by certain chief executives who have carried out, at the very least, a poor performance.
Maybe one of the most blatant cases, which has recently given rise to a lot of written opinions, is the one of BP’s CEO, Toni Hayward. Some media titled the news in the following way: “BP ‘fires’ its CEO with a millionaire pension while announcing record losses”. Ray R., Occidental Petroleum’s CEO, was also criticized by the media and rejected by the majority of shareholders of his company, after receiving a compensation of $ 160 million, while the corporation he still was administrating was going through a complicated financial period.
Besides the fact that these compensations are excessive, another complaint heard regarding the remuneration of chief executives is that their involvement with the company’s results is poor in the long-term and excessive in the short-term. In my opinion, Toni Hayward’s case was severely and unfairly criticized by public opinion, due just for this reason that his departure occurred in a complicated moment of the company. BP’s CEO was granted a year’s salary, as well as the right to withdraw part of his retirement pension which has been estimated to reach approximately 11 million pounds sterling. Nevertheless, it must be said that in Hayward’s favor, he left behind twenty eight years as head of the company, during which thanks to him as its CEO, the company reached great achievements.
These and other examples invite me to ask myself about the complex matter that is on the basis of which variables should the CEOs remunerations policies of a company be regulated. I have no doubt that there has to be a connection between the performance of the company (the results obtained by the company) and the CEO’s retribution. But, which should be the fairest connection? Moreover, which is the individual’s and which is the environment’s influence over the results? Should the goals by which these executives are evaluated be aligned with the goals of the rest of the companies of the competitor firms? Or, should each be graded by their own standards? Which company is exactly comparable with another one?
Beyond these and other cases in which for one or another reason an existing moral problem becomes obvious, it is necessary to arrive to the root of the problem in order to understand why, despite the different regulation attempts, there is no successful case yet. However, I will reflect on this matter in my next post.