Executive Compensation, Graft and Corporate Performance- The unholy trinity

In every recession, there is a huge uproar about the quantum of performance rewards that the C-Suite take home. During the last recession, triggered by sub-prime crisis bankers were paid huge bonuses in-spite of trillions of dollars of governmental bailouts from DC to Delhi.  This has been a very sensitive issue because the corporate class argues that top quality talent deserve top dollar for their acumen, because they are mind workers and create extra ordinary value for their organizations by innovating ideas that are out of the box. As Peter Drucker said, the top official in the company should not earn more than 20 times as a multiple than the lowest paid employee in the firm. Welfare States in Scandinavia, have the lowest differential gradient between the highest and the lowest paid worker in the corporate hierarchy.  This i guess is the result of the acid base buffer provided by the government when a recession hits particularly concerning food and health care.

Recently, in the media we have come across the Galleon Insider Trading Scandal with a Hedge Fund Founder and former Kinsey Executives mired in corporate deceit, graft and fraud. The question which comes to my mind as I write this post is- What makes such bright guys with the best of Ivy League and Elite academic background fall to lows of graft and corporate white collar crime. The Tyco and the Enron Scandals also were led by Harvard Business School Alumni and the best of financial behemoths at Wall Street fell like a pack of cards in the financial tsunami of 2008. In India, we have had the UTI Scam and other corporate goof ups which have bankrupted the common retail investor on the street.

The corporate compensation is a hot button issue, with the political class criticizing this issue across the board. Manmohan Singh on numerous occasions, has egged on India Inc. to pay modest sums of renumeration in a nation still developing. the Obama Administration reigned  in Wall  Street honchos on the topic of compensation and golden handshakes and the sheer vacuum in corporate accountability.  I believe that top class talent is in low supply and its important to pay top dollar to retain the brains in a dog eat dog world. The Singaporean Government pays private Sector Salaries to its ministers to attract top talent in the cabinet and politics at large. But this issue is also a political issue with a section of the electorate, which feels that the ministers are paid too much. This policy i understand is a masterstroke as this halts graft to a very large extent. Greed cannot be stopped, but it can be reduced.


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