Grant Thornton International chief executive Ed Nusbaum described generous C-suite pay rises at times when companies perform badly as “frankly insane” and poor corporate governance.
Nusbaum believes senior executive pay should be pegged against a company’s performance and to do otherwise “sends a terrible message to the marketplace”.
Nusbaum was commenting on remuneration packages in the broader context of corporate governance reform. Grant Thornton has tabled several recommendations to improve corporate governance as part of an EC consultation.
This includes shareholders being able to vote on executive and director compensation, the annual public disclosure of senior executive compensation, a triennial external board evaluation for listed companies and ensuring that CEO/chairman responsibilities are not held by one person.
Grant Thornton believes any EU corporate governance code should be based on a ‘comply or explain’ framework due to the varying stages of maturity between member state economies.
A growing pay gap
C-suite remuneration has been a controversial topic in recent years due to the soaring pay packages enjoyed by top earners while average workers endure pay freezes and cuts.
Twenty years ago, FTSE 100 company chiefs earned 17 times the average employee’s pay packet but today it is more than 75 times. This month, it was revealed that pension pots of the leading corporate chiefs soared by 70 per cent in less than a decade and the average value of a FTSE 100 chief’s fund is £3.9m ($6m) – 130 times greater than the £30,000 fund of an average employee.
Nusbaum accepts the pay packets of C-level executives in relation to the average worker will always cause some “controversy” but where resentment boils over is when remuneration packages are not linked to performance.
“This [issue] goes to the [heart] of the board of directors, corporate governance and independent thinking,” he said. “If you have a good chairman of the board, [he will] say, ‘what are you guys thinking? What’s going through your minds if we are asking our line workers to take cuts in pays while our company is hurting and you want to give yourself a big raise?’ It’s frankly insane. It sends a terrible message to shareholders [and] it sends a terrible message to the workers.”
Nusbaum points out he does not have a problem with CEOs making “ridiculously high amounts of money” if their performance is helping the company to be successful.
The EC is expected to issue a feedback statement on responses to its corporate governance framework consultation within the next couple of months.