Compensation packages on offer to chief executive officers (CEO) and other members of the c-suite are always going to act as lightning rods for the anger of both the general public and the popular media. Over the course of the last decade or so, the perceived excessive nature of executive compensation packages has helped to bring the issue to the fore, particularly in the financial services sector, the scene of much opprobrium in the fallout from the 2008 financial crisis.

Executive pay is certainly a high-profile and controversial topic. Generally, the debate around compensation schemes tends to focus on whether or not executives are overpaid, particularly given the global stagnation seen in real wages in developed countries in recent years. Critics tend to emphasise a need for controlling measures in executive compensation. By utilising salary caps, for example, it is believed that companies would be able to help keep compensation packages in check.

Stagnation of worker’s pay aside however, much of the debate around executive compensation has been framed by the financial crisis. Viewed under the microscope of the crisis, executive compensation is still a highly contentious and provocative subject some seven years after the crisis erupted.

The media and the general public, in various jurisdictions, have called into question the compensation practices of corporations and financial institutions in light of the collapse of global financial markets and the subsequent economic downturn. While workers ‘at the coal face’ were laid off, the perception of chief executives laughing all the way to the bank was widely disseminated. For many, the perceived excesses of companies and their executives, at a time when the fortunes of shareholders and workers were severely impacted, added fuel to the fire. The debate around executive compensation rumbles on today, and it is an issue which is particularly telling, given that in the US at least, the income gap is still widening. In 2014, the salary of the average S&P 500 company CEO was 373 times the salary of the average production and non-supervisory worker, up from 331 times in 2013, according to data from AFL-CIO, a national trade union centre and the largest federation of unions in the US.

Jul-Sep 2015 Issue

Richard Summerfield