Reining in exec pay neither wise nor necessary: Analyst
HONG KONG: Listed companies may lose their talented senior executives amid the economic recovery if the shareholders apply too much pressure on companies to rein in management salaries during the recession, a global human resource expert warned.
Rows over executive salaries and bonuses have intensified, as the global financial crisis wiped out significant share value on the Hong Kong stock exchange.
Minority shareholders in Hong Kong have urged senior management teams to give up their multi-million-dollar salaries and bonuses, as a token of regret for their failure to make their companies profitable.
Don Linder, practice leadership manager of global human resources organization WorldatWork, told China Daily in an exclusive interview that it is not desirable to try to cut executives’ salaries and bonuses in order to comfort the minority shareholders who have seen their investment capital shrink amid the global financial turmoil.
He said that the annual bonuses for senior executives usually consist of stock options and restricted shares. The executive bonuses, therefore, align with the share performance and the success of the listed companies.
As for the salaries being undeserved, he suggested that they are automatically adjusted down as well as up, as the company’s performance and fortunes change. “When the company isn’t doing well or the economy isn’t doing well, the executives get paid much less, just like the shareholders,” Linder said, “The executives will automatically get a pay cut, if the share price falls.”
Even though the senior management may have been paid less in bonuses amid the financial crisis, some chief executive officers in the US have taken bold steps forward to make their shareholders feel better.
Earlier in February, chief executive officer of Citigroup Vikram Pandit announced he would take a salary of only $1 and no bonus until the New York-based bank, which has received $45 billion bailout money from the US government, returns to profitability.
Although Citigroup is still dripping red, Pandit’s determination has gained him praise and recognition in the market.
Commenting on the one-dollar executive salary, WorldatWork’s Linder said the senior executives usually get very large long-term incentive packages, to offset the salary they have given up.
“It is public relations to a degree,” he said, “I think it makes shareholders feel better…”