Golden handshakes and high fives all round.

Posted by JSYL on Wednesday, August 05, 2009 in , , ,
Remember when everyone was up in arms over the scandalous amounts of money executives were supposedly paid in termination bonuses after companies like AIG and Pacific Brands crashed? "Typical. One law for the rich, another for the poor," our production manager lamented somewhat gleefully upon seeing the headlines in the morning news.

Well, it was around that time of general public disgust that I wrote my first story on executive salaries, and got my first glimpse into the weird and whacky industry of remuneration - that's right, I did say 'industry'. For it was then that I discovered that there are thousands of suits who make a living determining how much other people should be paid which all of a sudden made the phrase 'executive remuneration' a much more interesting one.

Think about it - how do you go about rewarding intrinsically unquantifiable amounts of 'talent'? It's the seemingly random sprinkles of entrepreneurial stardust that can turn a music box into an iPod generation, a daydream into a household brand, not to mention churn out billions of dollars in profit for shareholders and employees alike. But on the other side of the coin, many argued that the incentive of overly generous short term bonuses encouraged the equally 'entrepreneurial' risks many took that have so contributed to the ongoing effects of the global financial crisis.

Painting all executives who are paid astronomically more than you will ever be as the greedy bastards you wish you were, becomes all the more difficult when you learn that remuneration packages in recent years have tended to make it more worthwhile to take those risks and earn massive bonuses, because base salaries have in many cases actually been pretty low in comparison. The crudest (and largely inaccurate) metaphor I could use to illustrate this point is that of a McDonalds cashier working for a lowly $3 an hour, who gets paid a grand every time they throw a huge rock into oncoming traffic and miss all the cars. Sure, there's a huge risk some of those pesky drivers might get hurt in the process, but who wouldn't, given the opportunity?

Compound all of that with the problem of the packages used to pay execs, which are complex little bastards in and of themselves, and don't necessarily guarantee that compensation will be paid in full, if at all. As Heidi Mason, former CEO of Enron's Australian branch (the well performing, honest one) explained to me after the Pacific Brands scandal:

"PacBrands is the perfect example of the most ill-advised media that you’ve seen in a long time. Everything that is quoted about the way Sue’s salary has changed completely ignores the fact that she’s gone from a Divisional General Manager role to a CEO role. The number they’re quoting on the low side is what she was entitled to in a completely different role 12 months ago. The number they’re quoting on the high side includes all aspects of her variable compensation that she’s not necessarily going to get."

Despite all these enlightening moments of discovery, I was still pretty green and uncertain about the ins and outs of it all when I attended the FINSIA breakfast conference on remuneration. I was so nervous I spilled coffee everywhere, and felt the need to explain to anyone I made small talk with that even though I didn't have a name tag and looked about 12, I really was allowed to be there. All attempts to at least appear as nonchalant and confident as the journalists, remuneration specialists and executives around me officially went to the dogs when a woman asked me if I was a 'rem manager too' and my face went completely blank. Rem. Remuneration. Who would've guessed, right?

Thankfully, some good came of it. I wrote an article on the conference which was published in the Insto newsletter, and after a lot more research, gave an overview on all rem reforms in Australia in this article for the magazine:

You'll notice it's very different to my first article on this subject, which had been timidly ridden with long quotes for fear of making any ludicrous conjectures of my own. I've found that financial reporting involves a LOT more assumed knowledge and analytical skill than I'd previously assumed. So I'm pretty proud of this one. :)



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