The dramatic increase in the gap between the highest paid employees and the average pay grade is not just bad economics and worse politics. It reflects a major break down in corporate governance.
The fact is that not only are most fund managers lousy investors- they rarely beat their benchmark, and the majority in recent years have actually lost money for their investors- they are truly appalling stewards of the investments that they make.
Fund managers have been content to allow through any pay request made by the management of the companies that they invest in. These requests come, of course, through the remuneration committees of company boards, which are largely staffed by... ex-executives. Instead of querying the increasingly large sums going to senior management, the fund managers, if they dislike their investment, will simply sell it.
The result is that executives have had little or no scrutiny of their remuneration- it is simply rubber stamped by a bunch of compliant place men.
Fund managers fail in the fiduciary duty to their investors if they permit management to over pay themselves to this extent. If the government wishes to make a point, they could remind fund managers that they have this fiduciary duty. Meanwhile, individual investors in funds could threaten to sue fund managers that continue to vote for excessive pay packages for senior company employees.
The solution to the robbery of the shareholders by senior management is to force the agents of the investors, i.e. the fund managers, to take the issue seriously. We have the means to impose greater discipline over managements, but the cozy cabal of the City has not been forced to take action.
Time to do so. Which individuals will lead a class action against the UK fund management industry for permitting this theft to take place?
The fact is that not only are most fund managers lousy investors- they rarely beat their benchmark, and the majority in recent years have actually lost money for their investors- they are truly appalling stewards of the investments that they make.
Fund managers have been content to allow through any pay request made by the management of the companies that they invest in. These requests come, of course, through the remuneration committees of company boards, which are largely staffed by... ex-executives. Instead of querying the increasingly large sums going to senior management, the fund managers, if they dislike their investment, will simply sell it.
The result is that executives have had little or no scrutiny of their remuneration- it is simply rubber stamped by a bunch of compliant place men.
Fund managers fail in the fiduciary duty to their investors if they permit management to over pay themselves to this extent. If the government wishes to make a point, they could remind fund managers that they have this fiduciary duty. Meanwhile, individual investors in funds could threaten to sue fund managers that continue to vote for excessive pay packages for senior company employees.
The solution to the robbery of the shareholders by senior management is to force the agents of the investors, i.e. the fund managers, to take the issue seriously. We have the means to impose greater discipline over managements, but the cozy cabal of the City has not been forced to take action.
Time to do so. Which individuals will lead a class action against the UK fund management industry for permitting this theft to take place?
Comments
I'm not a fan of (wink wink nudge) nudge libertarianism. Most of the days, anyway.
It would be interesting to find out what would happen to comparissons of executive pay today and thirty years ago, if we also looked at the various perks and the infuence of the tax code on higher pay.