Senior managers can be rewarded as much for their contribution to organisational failure as for their contribution to organisational success. Discuss.

Essay by cityfanUniversity, Bachelor'sB-, December 2003

download word file, 13 pages 3.7 1 reviews

The issue of executive remuneration has continued to be the most headline grabbing corporate governance issue dominating the 2003 AGM season. In the past couple of years the media has recounted countless stories of senior directors walking away from companies with huge compensatory payoffs. Such high-profile cases have fed a growing mood of public disgust and shareholder disdain, and this has led in turn to many calling for substantial action to be taken. The way that company bosses continue to award themselves huge pay and benefits packages seemingly irregardless of the way their organisations have performed has increasingly infuriated a growing number of investors.

Growing displays of shareholder activism have led to heightened tensions between company bosses and the shareholders who own their companies, often led by the Association of British Insurers and the National Association of Pension Funds, whose members collectively own approximately half the shares traded on the London Stock Exchange.

As boards of directors are the agents of shareholders they are technically accountable for their actions, yet to many they appear not to be. As a result increased numbers of company directors have been forced to explain remuneration, pension and contract packages to shareholders at volatile AGMs. Such large protests are new, as resolutions at annual meetings have tended in the past to be little more than ratification exercises by shareholders. However as this was the first year in which they were given the legal right to vote on the remuneration policies of companies at annual meetings, shareholders in British companies have been able to vent their anger. Figures compiled by the Pensions and Investment Research Consultants (PIRC), the corporate advisory group, show that more than 20 companies endured protest votes in excess of 20% against their remuneration reports this year. And arguably for good reason...