James Montier, a former co-head of global strategy at Société Générale and current member of the asset allocation team at GMO made the case that rewarding CEOs on the basis of "shareholder value" had finished up destroying the value of corporations.Pascoe also sought feedback from Paul Anderson, former CEO of BHP and Duke Energy.
One of the things that distinguished Paul Anderson, aside from revolutionising BHP and then effectively rescuing Duke Energy, is that he's the only CEO I've interviewed who readily agreed that he had been paid too much. His response to the Buttonwood and GMO paper was characteristically honest and insightful....
"As in all things, it's not that simple," he said. "The era of the long-term manager led to a lot of complacency and managing for the benefit of the CEO as well. The idea of tying CEO remuneration to shareholder value shakes up that model, but it has gone way too far.
"A stockholder once asked if I would work any less if I was paid a million dollars less. I simply answered 'no', but in the back of my mind I was thinking that I couldn't even tell him within a million dollars what I did make....
"I believe the big driver in CEO pay has been the constant public comparisons. CEOs want to feel that they are appropriately recognised and rewarded within their universe. I don't care what I make, but it irritates me if I make less than a bunch of idiots running half-assed companies. Also, compensation committees don't want a policy that says we pay in the bottom quartile and hope to get top quartile performance.
Making it to the CEO's office doesn't necessarily mean great talent or wisdom. Sometimes it's pure luck, being in the right place at the right time with a series of fortunate binary decisions on the way there. Sometimes it's a talent for corporate politics and knowing how to smooge the board. Sometimes it's just the Peter Principle at work.
But whatever it is, the board will want to pay him or her wonderfully well.