The principal-agent problem surfaces time and again with public companies. Management in no way have the collective guts to shout when the "emperor has no clothes".In fact none of them are incentivised to do so. The myriad of committees, Audit, Remuneration, Risk , Income, Sales etc. are all just talking shops. The sad truth is that everyone in lower rungs who works at these companies knows this but they aren't given the voice to tell anyone. If you are a "normal" employee and you're reading this, have you ever wondered what the senior management do in their board meetings? Or even the non-executive directors who are paid your yearly wage for 3 days work? We were told that these wages come with great responsibility. Where is the repercussions that come with failure then? I haven't seen any board members accused or sent to prison for their fiscal failures. Surely, we tell even our children that actions have consequences. Well, where are the consequences to presiding over management failure? Even if you are fired you keep your benefits and the ill gotten gains of million dollar salaries to tide you over whilst you look for your next "consulting role" from one of your other management pals? Would you care about your decisions if you knew you would walk away with your pension and a million pound salary for the rest of the year?
If you think about it, mid level employees (managers etc) have the most to lose from a bankruptcy or fraud, they are the people with values most in alignment with the retail shareholders and pension fund owners. The management are simply paid too much to care. We've all seen the obvious scenarios, longer term incentives are bought out in cash/incentives when a senior employee moves from one organisation to the next. They have no long term skin in the game as they can simply cash in whenever they take a new job. With the removal of long term job security, we now have a merry-go-round. The latest I saw the other day was the CFO of RSA Insurance moving to Lloyds Bank as the new CFO. So, Lloyds Bank (now the taxpayer) has to pay to "buy out" the employee of his previous long term incentive plan.
Why is this not obvious to everyone? The gravy train has been running for years, through remuneration committees recommending each other's pay or "recruitment professionals" announcing market rates and persuading staff to constantly look at other job. These shenanigans are plain to see and benefit the upper middle class and elites who run companies which are owned by pension funds (whose owners are teachers, nurses and policemen). What a ridiculous system. With current social media shareholders should be able to broadcast and evaluate all decisions a board makes within minutes not in an annual report and we should physically tie compensation to a role. If they choose to leave the role, they can forfeit their compensation and make it a rule that their future company cannot replace it through salary or additional compensation.
I think its time to truly tie generational performance, pay and responsibility to monetary remuneration. Without this, the agents will simply skim into their own pockets using stooges to make it look legitimate. Put rotating workers from each corporate level on the board so they can understand and disseminate what the board are doing and where they are taking the company - 99% of decisions aren't market moving.
What a joke we have become - the systems set up to safe guard our investments in society have been circumvented for rich rewards for the few and a lifetime of debt servitude for the many.
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