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Leading by example

Written by on 24 January 2011

A report recently announced that top executives have been rewarding themselves with pay rises of over 50% whilst at the same time, imposing pay freezes - and in some cases pay reductions - on their staff.

Top talent requires top remuneration

Much has been discussed about the requirement to tempt the best talent with eye watering financial packages. However, research conducted into the link between remuneration and performance suggests that beyond a relatively low point (approximately £50k) performance does not significantly increase with financial remuneration. It would appear that motivation is far more complex than purely financial return.

Remuneration based on performance

Top executives often justify their pay based on the performance of the company within that financial year. Yet, on closer examination, many of their measurements are highly subjective or have been achieved through short-term measures (such as cutting operational costs in order to inflate in year profit) with the potential for long-term damage.

Utilising targets and balance score cards

Many boards have adopted a balanced score card approach. This is when a range of measures or targets are imposed in order to provide a wider criteria of success. These measurements are often narrow and defined by individuals who will share in their successful outcome. This conflict of interest has been addressed by some companies adopting an external remuneration awards policy. It would appear to be an excellent solution, however, again, on closer examination, many of these bodies are staffed by non-executive directors who share close working relationships with the boards being reviewed.

Good for one, good for all!

Where a basis of financial remuneration can be agreed, should that measurement not be used to remunerate everyone in the company on the same basis? As revenue and innovation is often generated at the coalface of the business, should more emphasis not be given to direct income generation?

Conflict of interest

The close working relationships and relative exclusive networks of the top executive produce the outputs and actions that are difficult to perceive as ethical or legitimate.

Sustainability and growth

The drive for greater transparency of remuneration is not a case for a socialist state rather a plea for businesses to recognise the value of their people and for business leaders to lead from the front, take the tough decisions and set an example through actions not words!

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