Gauteng Business News

Send  Share  RSS  Twitter  18 Jun 2012

EXECUTIVE REMUNERATION:  Top Executives Taking Home Less Cash


Recent Gauteng Business News

On the back of crippling global financial markets, blue-chip companies are increasingly moving to reduce the cash element of their executivesÂ’ compensation packages and linking additional financial rewards to strong long-term performance.

The top team at Barclays, including CEO Bob Diamond, will be taking home less this year, as will Goldman Sachs boss Lloyd Blankfein, whose salary is set to be reduced by 35 percent. AmazonÂ’s Jeff Bezos and Microsoft CorpÂ’s Steve Ballmer both earn less than $2-million per year in cash return; Amazon purposely links pay to improving shareholder value. Even Absa head Maria Ramos is deferring a R14-million bonus due to her.

Debbie Goodman-Bhyat, managing director of Jack Hammer Executive Headhunters and local partner of IRC Global Executive search partners, says the global financial crisis, which started in 2007, is a major factor behind the tempering of executive pay cheques.

Avoid Executives Engaging in Risky Activities

“There has been a very inconsistent and indecisive global economy for the past four or five years. After the big meltdown between 2007 and 2009, some markets experienced a partial recovery in 2010, but many markets plummeted again 2011, especially in the Eurozone.

“What this relatively quick erratic cycle means is that a company could have a really good year (coming off a low base from a previous year) followed by another really poor year or two. In order to avoid a situation where executives ‘take the money and run’ after a single good year among many poorer ones, or engage in fairly risky short term performance enhancers, incentives are now being delayed and linked to long-term disbursement strategies.

Views of the Executives

“These include taking the money in cash but over a longer period – even a few years – or an annual bonus taken partly in cash, with the rest transferred into shares that vest over a future period. This achieves a few things: a more ‘long-term’ view taken by executives; some ‘stickiness’ in terms of staff retention; and the avoidance of a situation where a company is compelled to pay out big bonuses in lieu of positive performance for one year but where there is no measure in place to address the need for consistency.

Goodman-Bhyat reckons that the “individual performance” aspect of the typical executive payment package now accounts for only 30 to 40 percent of it, with the rest linked to the company’s overall performance.

“We continue to see a fundamental restructuring of how top professionals are paid, with the focus moving to financial reward for reducing risk, ensuring ethical governance and development of a long-term point of view. The past few years have taught many firms some disappointing lessons and steps are now being taken to make certain that companies derive the most favorable value from their executive teams.”

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