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Global Commentary
Sunday, 12 December 2004
Chief executives enjoy rising remuneration
Topic: Business
In a story titled "CEOs and their Indian rope trick", The Economist says that executive pay should reflect performance, with total remuneration fluctuating with company performance. However, it reports that in practice, there has been little sign of that.

[T]op executives' remuneration spiralled up, with the stockmarket as a whole, in the boom years at the end of the 1990s. But it continued to levitate thereafter, like the subject of an Indian rope trick. Mercer, a consultancy, says that the median compensation of bosses of big American firms...rose from $5.2m in 2000 to over $7m in 2001, a year when tumbling share prices cut shareholders' assets by some 12%.
As a result, the difference in pay between top executives and their workers has grown.

In 1991 the pay of the average American large-company boss was about 140 times that of the average worker; by last year, it was over 500 times, and growing. Last year's 7.2% rise in the average American boss's total compensation is worth over $400,000--nice work, if you can get it.
The Economist adds that the European chief executive's pay lags behind that of the American. According to the Hay Group, a consultancy, the basic salary of the chief executive is about the same on both sides of the Atlantic, but while variable pay adds only 150 percent to that in Europe, it adds 400 percent in America.

The Economist highlights several initiatives to address the issue of high executive pay. One was by CalPERS, America's largest public pension fund, to hold "directors and compensation committees more accountable for their actions". Another is the possible introduction of accounting rules that would compel American companies next year to treat share options as expenses to discourage their use (share options allow executives to profit from increases in the price of their company's shares, even when the price movements are not directly attributable to the executives).

Of course, the way that the boards of most corporations are structured, chief executives usually have an advantage in determining their own remuneration anyway. Individual shareholders often lack voting clout, with shareholdings divided among many parties. Even the majority shareholder -- sometimes represented by just an officer from the parent company -- would likely have less at stake when determining the chief executive's pay than the latter himself.

Furthermore, the chief executive, placed between the shareholders and the rest of the company, controls information flow to and from the company, while also being able to play off shareholders against each other. Thus, politically astute chief executives can concentrate actual power in the boardroom in themselves instead of the shareholders, where it rightfully belongs.

All these factors give chief executives an advantage in squeezing out lucrative remuneration for themselves. Regulation to improve corporate governance and dampen executive remuneration works best when it takes this advantage into account.


Posted by lim_cs at 6:42 PM WST | post your comment (0) | link to this post
Sunday, 30 May 2004
Brazilian president has ambitious trade plans
Topic: Business
Last June, Brazil, India and South Africa had formed the G3 to boost trade and combine their political muscle in world forums like the United Nations. Now, President Luiz Inacio Lula da Silva of Brazil thinks the group can be expanded.

"We dream that in the near future it will be a G5, which will be with Russia and China," President da Silva told reporters on 27 May during his trip to China. "We want to build a political force capable of convincing rich nations...they can ease their protectionist policies and give access to the so-called developing world."

The United States, however, is unimpressed.

"We need to focus on the substance [of talks], not what the gamesmanship is," US Commerce undersecretary Grant Aldonas told reporters in Brazil's Congress when he was asked for his opinion of President da Silva's proposal. "Whatever the grouping is that's not that much of a concern."

Even if the G5 proposal does not make any headway, President da Silva's visit to China may already have. His delegation of eight cabinet ministers, six state governors and 450 business leaders has already sealed a number of commercial agreements. These include US$5 billion worth of deals for Brazil's CVRD group, the world's largest iron ore exporter, and an accord that will see Brazilian and Chinese oil companies working together in South Asia, Iran and South America.

As it is, Brazil and China -- the two biggest economies in the developing world -- have already seen trade between the two nations grow five-fold between 2000 and 2003 to a value of US$8billion.


Posted by lim_cs at 9:48 PM JST | post your comment (0) | link to this post

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