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May 2010

Executive remuneration and sustainability

Executive pay is under intense scrutiny internationally by governments, the media and social commentators. This discussion paper from the CIMA knowledge unit offers principles that should underpin remuneration schemes, reassuring stakeholders that performance-related pay reinforces behaviour creates long-term sustainability.

In the mix of factors that triggered the global financial crisis in 2008, executive bonuses that encouraged the philosophy of short-term success had a major role. Performance pay, particularly for top executives, represented the majority of a manager’s total pay at many companies. And often, performance was judged by measurable data such as sales figures or share prices. Yet, these metrics fail to take into account longer-term risks being carried by financial institutions and other companies. This analysis suggests that there is a better model that focuses more clearly on sustainable corporate health.

No shareholder should need a machete and a pith helmet to go hunting for what the CEO makes.

Christopher Cox chairman US Securities and Exchange Commission

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Executive remuneration and sustainability