Executive Pay – there is a new paradigm

A new post from John Mansfield, MI’s Project Lead on CEO Remuneration

brexit-paradigmThe recent US election results together with the unexpected Brexit outcome demonstrate that the voice of the people has serious credibility and the ability to shift paradigms around entrenched political and economic norms. The ‘anti establishment’ sentiment demonstrates the unrest that has festered around inequality, massive wage and standard of living gaps and how laissez faire capitalism has largely failed the people, who up until now have been searching for their voice to counter established ideologies.

The next wave of this movement politically is still to be seen across Europe and other parts of the globe, but how well prepared are corporates to demonstrate to their shareholders that they have heard their voices and have committed to proactively address previously unchallenged ideologies and entrenched market practices.

Organizational pay at executive levels and shareholder unrest around inequality gaps has strong correlations with the social and political landscape. CEO pay in particular has received much scrutiny and challenge, but with seemingly ineffective outcomes given the entrenched behaviours, expectations and the competitive nature of industry. Indeed, the system has created a ‘moral hazard’ where each role player is only incentivized to act in their best interests, and a ‘prisoner’s dilemma’ which does not support making the first move and being exposed as the outlier.

Solutions to such challenges often require shock events to recalibrate to equilibrium.

I think we’ve just experienced them!

John Mansfield

For details of MI’s Value and CEO Remuneration project, click here

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