atans1

Performance-related pay: Not applicable to CEOs and minsters

In Corporate governance, Political governance, Public Administration on 11/09/2013 at 5:32 am

The financial industry especially investment banking and broking gets a bad name because of the outlandish bonuses for the rainmakers or the swinging big dicks i.e. top traders and salesmen. But it’s abt income generated whether thru fees, commissions or trading profits. Example: 46%  of the department of Merrill Lynch’s Global Wealth & Investment Managment revenue comes from only 21% of its top-producing brokers, about 2,500 people. http://www.reuters.com/article/2012/05/09/us-merrill-brokers-elite-idUSBRE84817N20120509

Of course there is moral hazard: losses are borne out to shareholders and taxpayers. And sure there are issues of cost and risk allocations especially the cost of capital used but there is a link between productivity (measured here by revenue) and pay.

BUT

There is no correlation between FTSE 100 bosses’ pay and the performance of the companies they run, a BBC report reveals.

And

C.E.O. Pay Keeps Climbing Shareholders have sounded alarms over executive pay and achieved victories at companies like Citigroup and Hewlett-Packard. But despite the noise, the median pay of the nation’s 200 top-paid C.E.O.’s was $14.5 million last year, an increase of 5 percent from the year earlier, according to a study conducted for The New York Times by the compensation data firm Equilar.

“One might reasonably conclude that the senior management of a bank cannot possibly know what is going on at the level of the individual traders; banks are just too complex. Fair enough. But one cannot have it both ways. If bank executives cannot be held responsible for all the shenanigans that go on underneath them, nor can they be responsible for all the profits that result. A lot goes on at a bank that is entirely out of the CEO’s control. So when Barclays makes a bumper profit, why should the CEO get an outsized bonus? The profits may be down to luck, or to rising markets, or to trades that the CEO cannot possibly be aware of.”

So the fallacy of paying ministers, CEO-like salaries is based on the wrong premise. CEOs’ pay are not performance-related.

Then, there is another problem with performance-related pay for ministers. This time the issue of collegiality. Everyone is more or less paid the same to promote team-work and shared responsibility. Remember collective cabinet responsibility is a political convention.

Tharman, Teo, Ng, Khaw, Shan, Kee Chui and now VB* (notice that the Indians are punching above their weight** despite only constituting 7% of the population) have to carry the likes of Yaacob, Lui, Tan, Fu, and Hng Kiang. In the cabinet, the salary differentials are very narrow according to PM, so the gd performers don’t get that much more. But thank god for small mercies. We once had to pay for SM Goh, Raymond Lim, DPM Wong, George Yeo, VB (not cut out for “compassion” jobs but gd at “rational” tasks?) and Mah, in addition to the present bunch of non-performing cabinet ministers who were then in cabinet. And wider still what abt the Speaker, and jnr ministers and parly secs?

Finally there is the point raised by this TRE reader? Can ministers who are ex-generals earn that much in the private sector https://atans1.wordpress.com/2012/01/25/refute-this-question-pap/

*”Haze? What haze?” since he shouted “Rape!” at the Indons. I mean PM said haze was returning: he was wrong; as usual. I mean the haze season is ending. Related post: https://atans1.wordpress.com/2013/07/05/haze-pm-silence-is-not-a-solution/. And he doing something about the flooding at Orchard Rd and now an expressway: listening to the engineers who have advocated spending money on flood prevention projects. Yaacob stuck his head under sand under the water, like what he and his sis did when LKY uttered his Hard Truth about the Malays, muttering something about “worse case scenario”. His sis was there when LKY made the remarks. It was left to PM to sort dad out. https://atans1.wordpress.com/2012/02/10/state-of-the-pap-my-light-hearted-analysis-based-on-gossip-heard/

**Judged by relative results

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: