There has been much talk of inequality of pay in recent years. Given how much it has grown, it’s extraordinary that it hasn’t led to more widespread social discontent. One reason, however, may be that traditional protesters’ policy responses tend to be limited to tax and regulation. Better run organizations would provide a more lasting approach, safeguarding jobs. A new blog by the Chartered Management Institute picks up the theme, and points out that the theory behind executive and other pay is quite illogically different:
Moreover, when it comes to their own pay, senior executives employ a different theory; one which has led to huge increases in their remuneration in recent decades. This is known as ‘agency theory’. In this, the ‘agents’ of the shareholders (senior executives) have to be motivated by vast amounts of cash and share options in order to be incentivised to maximise financial returns. It doesn’t work, usually – there is considerable evidence that managing for all stakeholders improves performance in the round, including financial returns – but it has been the norm.
For the full blog, click here.
Radical Shift 