CEO remuneration

Published in Crikey

Why is public company CEO remuneration out of control? Political leaders are paid a tiny fraction in comparison, as are top managers in the non-profit sector. We are told it’s necessary to compete in the international CEO market. Just how efficient is this CEO market?

The listed companies managed by the CEOs compete for capital in the global equities markets. This is free market capitalism at its best — competition regulated for transparency and fair play. It’s the most efficient mechanism known for setting the fair market value of a company. Yet the market for public company CEOs the world over operates more like a rigged market. Shareholders get a non-binding vote on a deal already done by the board behind closed doors. A choice between one and none is not a choice. And it’s not a real vote in more ways than one.

The democracy of the parliament killed off real democracy in the equities markets with compulsory super. The financial institutions dominated by the super funds control the voting rights. Vast amounts of capital are transferred from ordinary workers to the super funds along with their voting rights. How many super funds ask their members how they should vote with their capital? Those with super can answer. However diligent the super funds may be they have failed on the CEO pay issue. The outrage at CEO pay is coming from the ordinary worker, forced to hand over capital along with their voting rights.

An enlightened board could set an example by inviting anyone with a published biography and asking price to nominate for CEO then invite shareholders to participate in a secure preferential vote. No vote is wasted and a fair market result is guaranteed. Dissatisfied shareholders might call for competitive offers and a vote on the entire board plus CEO team.

However it will not be a fair vote until the superannuants are all invited to vote their share of the capital — a kind of reverse proxy back to the real owners. When offered a choice the vast majority of people choose online voting over paper voting. Online direct voting is already common place in the non profit sector. It’s vastly more secure with an audit trail, flexible, convenient, green and much cheaper than paper voting. Yet it’s rare for public company boards to offer direct voting even by paper. It’s entirely practical to offer superannuants an online vote on the relative portion of their shares. Technically it’s a straightforward application of existing well seasoned technology.

Tags: CEO remuneration, Online voting