Lax corporate governance has caused executive pay spiral, says Myners

by James Brockett, for People Management, February 9, 2010.

Institutional shareholders should exercise more power to clamp down on executive pay, financial services minister Lord Myners said today.

In a speech to the NAPF seminar on corporate governance, Myners bemoaned the “upward spiral” of boardroom remuneration in the last decade and said that major shareholders such as pension funds has a duty to impose more scrutiny on the issue. The failure of the banks in particular demonstrates the risk of large firms becoming “ownerless corporations” with no effective shareholder governance, he said.

“Over the past decade people who owned shares in UK banks have enjoyed a return of little more than zero. Over the same period bank executives and traders have taken home many billions of pounds in remuneration,” said Myners. “If you owned a bank outright, that is to say you were the sole shareholder, you would never stand for such a situation – but collectively we have. Somewhere in the fragmentation of ownership of quoted companies… we appear to have lost the ability to hold the boards of some public companies to account.”

Myners referred to Incomes Data Services research showing that FTSE 100 chief executives earn 81 times the average pay of full-time workers. This multiple was less than 50 a decade ago, while management theorists historically believed that 20 was a healthy ratio. It is hard to explain this pay boom in terms of the demand or supply of talent, said Myners…(continue reading)

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