History will look back on the 1990s and early 2000s as a time when the principal officers of public American corporations transferred from shareholders to themselves approximately $1 trillion - or 10 percent of the market value of public exchanges. This must be the largest peacetime movement of wealth ever recorded, and it was accomplished through stealth that amounted to theft and in a spirit of regulatory permissiveness that certainly rises near to the level of criminal neglect." In addition, there is the extra 5 percent of profitability that the Corporate Library metric tells us is lost through bad practice, plus the opportunity cost of boards focusing on short term personal aggrandisement at the expense of sustainable profitable growth. As the one member of the SEC, who opposed the Committee's recent decision to limit the ability of shareholders to put forward resolutions, said: "Corporate governance in the United States is not well served by inattentive boards that are effectively unaccountable to shareholders."
Inevitably one of the headline manifestations of this lack of accountability has been the grossness of the rewards, which some of these principal officers have arrogated to themselves, for failure as well as success. There are attempts to justify these excesses by analogy with the earnings of stars of sport, stage and screen or by claiming that they are market determined. The analogy with the stars is manifestly spurious. The stars earn what their individual talent commands in the hotly contested market for entertainment. The profits of a corporation are earned collectively and represent the sum of the efforts of everyone in an enterprise. The issue therefore is how they should be distributed in a form that would be generally perceived to be fair and in accordance with the concept of natural justice.
A corporation's pay structure should meet the test of equity, rewarding those working for it, from top to bottom, in relation to their contribution to its performance. Ignoring equity in rewards sows the seeds of social division and dissension with its longer term consequences. What seems to have set the bounds to the multiple by which the earnings of the principal officers of companies exceed those of the average employee in most countries is a sense of social cohesion. The multiple varies by country and through time, but it represents a social constraint or discipline, which carries with it economic advantages not to be ignored.
- Bob Monks: Corpocracy