Greed is not good, say investors pushing back as company bosses pocket big cheques. On Friday Norway’s sovereign wealth fund’s boss Nicolai Tangen amplified the chorus of dissent with a rallying cry to shareholders to vote down excessive pay and rein in corporate greed.
The $1.2tn oil fund has already voted against pay packages at Apple, IBM and Intel. Apple investors did vote through Tim Cook’s $99mn compensation package; it was approved by almost two-thirds. But then Apple — until this week the world’s most valuable company — has rewarded those who hold its shares as well as those who run it. The same cannot be said for Intel’s Pat Gelsinger, who pocketed $178mn while its shares have flatlined for years.
Some will moan that Tangen, once a highly paid hedge fund manager, has gall complaining about pay. Yet his argument is not about altruism. Markets reward the deserving and reduce the spoils for lesser performers.
The growth of stakeholder capitalism complicates today’s calculations. Bosses presiding over languishing performance may well talk up other metrics. As valuations compress, shareholders should be wary of alternative proposals for benchmarking pay.
True, linking pay to shareholder returns does not always ensure executives are aligned with shareholders. But it remains the least bad. Rising stakeholder capitalism has spawned a growing trend to link remuneration to environmental, social and governance metrics. In the UK almost two-thirds of FTSE 100 companies had some kind of ESG link to pay at the end of last year, a PwC study found, up from less than half the year before. US statistics reflect a similar trend.
The logic is sound: climate change and societal issues require attention. The problem lies in accurately measuring performance. There are no uniform standards — let alone sufficient external scrutiny. Most ESG pay incentives at US companies are impossible to assess and outcomes are rarely even disclosed, a recent study from Harvard Law School concluded.
Greed under the guise of good might be the next big pay scandal in waiting.