Essay on Why Shareholders Should Have A Say On Executive Compensation

Essay on Why Shareholders Should Have A Say On Executive Compensation

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The following is an essay which discusses the issue of whether Shareholders should have a say on Executive Compensation. Corporate governance can be defined as a set of procedures by which an organisation is regulated. The framework ensures transparency and accountability in business dealings whilst taking into account stakeholders’ interests. Executive Compensation, a formerly marginalised topic in British society and corporate world, has been brought to the frontline of British society by extensive media coverage, due to the subprime mortgage disaster which caused the collapse of some banks, most notably, RBS and Lehman Brothers. In a post recession world, Government regulators have enforced more regulations and demanded for more transparency in order to curb businesses excesses and for businesses to strictly follow Corporate Governance. In this essay, the arguments analysed will be based around Pay with Performance. Pay with Performance, is a solution engineered to justify Executive Pay, whereby if a Manager performs exceedingly well, Pay is increased and vice versa for Managers who perform subpar.
Neate documents the revolt of Shareholders in Shell to justify why Shareholders should have a say on Executive compensation. Shareholders defined as people who have shares in the company have the primary goal to maximize their investments. Neate reports that the profits of the company “dropped by $1.5 billion, however the Chief will get a $3.3 billion cash bonus” (The Guardian, 2013). Shareholders want to maximize their interests and according to corporate governance, Managers are accountable for their actions and they should have shareholders’ interests at heart; an opposite of this is illustrated in this article. This situation exp...

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... dominant force who failed to heed warnings from the Board members not to acquire ABN AMRO and made RBS suffer from the winners curse after acquisition. Overall, RBS collapse led to the loss of £28bn, the biggest corporate loss recorded which led to a Government bailout. As a result of the bailout, 70% of ordinary shares became Government owned. In reference to ABN AMBRO, the bank became nationalised by the Dutch Government. To add validity to the nucleus of the argument Bebchuck and Fried note that “acquiring firms lost a total of $218 billion from acquisitions” and “61 percent of the buyers “destroyed their own shareholders’ wealth” in the process by overpaying for their targets” (Bechuk and Fried, 2004). Overall, Shareholders must not have a say on Executive pay as their interest driven focus could lead to failure of curbing the excesses and power of the Executive

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