February 1, 2021
The Jamaica Gleaner: Banks – Shareholders, staff want greater transparency into individual managers’ earnings
by Jovan Johnson
Providing strong incentives to increase shareholder value, retaining key talent and limiting shareholder cost are the three main objectives of executive compensation, Harvard researchers argued in 2018 study.
The ‘say on pay’ tool is emerging as a major mechanism to balance those objectives by driving improved corporate governance through stronger shareholders oversight while curbing excesses in the quest to reward performance.
Prior to the changes, US companies’ concerns ranged from a view that salaries were not material, relative to the performance of the company, and, therefore, no real benefits to investors, and that there was no substantive reason “to sacrifice” a matter of privacy, noted Marc Hodak, partner at Farient Advisors LLC, a US-based consultancy on executive compensation.
He said there was a view that revealing that pay amounts would put public companies at a hiring disadvantage relative to private employers, whose executives do not face that burden.
“Needless to say, in the US, these concerns were set aside and you can’t be listed on a US exchange without this disclosure,” he said, acknowledging that the overall compensation expense of banks “is clearly material”.
The precise details of managers’ compensation is “potentially” to mainly support the “window on governance” theory, which he said refers to investors’ belief that such disclosures give them a peek into the quality of a board’s leadership and decision-making.
Hodak, however, said the compensation details could be weaponised to “tamp down pay by inciting controversy about pay levels and general inequality”.