Remuneration and Riots: Rethinking Corporate-Governance Reform in the Age of Entitlement

Abstract

The question this paper addresses is whether the corporate-governance reforms of the past 30 years have actually made our elite-remuneration problems worse. This article posits that, over time, corporate-governance initiatives have created a regulatory edifice that has neutered executives and distanced shareholders from important internal governance matters, such as remuneration, while at the same time considering disclosure of elite salaries a legitimising tool in itself. In the public sector, the mimicking of private-sector agency-cost-reducing norms and transparency initiatives has had a similar accelerating effect on the salaries of the elite. The price of this edifice in all sectors has been high elite pay, as neutered executives and public servants have sought out remuneration as a proxy for power, prestige and service. In turn, there has been a steady increase in public awareness of and unhappiness about elite remuneration. The paper concludes that the answer lies in giving executives and public servants back their discretionary power to manage, by removing many agency-cost-reducing initiatives. Real solutions are likely to be found by: ending quarterly financial disclosure; exempting public-sector salaries from Freedom of Information (FOI) requests; ceasing to use performance-related targets; reducing the influence of Non-Executive Directors (NED); increasing the cost of exit for shareholders; allowing boards to use their powers to defend takeovers; utilising average-pay ratios and employee say-on-pay rights; and removing remuneration-disclosure requirements.