While corporates have an image for poaching top staff from rivals with huge financial enticements, research seems to show the opposite is true. Many CDOs are long-standing one-company people whose loyalty is eventually rewarded with the top job. James Johnston reports
Media hyperbole and political points-scoring often obscure the important concerns that lie behind the issue of CEO pay.
High-profile scandals, such as the Robert Maxwell pensions affair, have highlighted the importance of companies putting adequate safeguards in place.
The absence of a link between executive rewards and company performance may indicate that internal controls on managerial discretion leave something to be desired. Trade and industry secretary Patricia Hewitt echoed public anger at the seemingly relentless rise in directors' pay last November when she said: "All too often directors are lavishly rewarded for lacklustre or even poor performances."
Quite apart from the spectacle of unjustified enrichment, there is also the worry that badly designed CEO remuneration packages may damage profits, shareholder returns and jobs.
Union leaders have been particularly vocal in their criticism of the juxtaposition of inflation-busting pay rises for directors and the more modest settlements for their members. Responding to an Incomes Data Services survey on executive pay, TUC general secretary John Monks said last October: "Executives' pay rises show no sign of letting up. We need to see some boardroom restraint especially in such uncertain economic times."
It is possible that if worker discontent on this issue is not addressed satisfactorily, it may eventually dent worker morale, lower productivity and sour industrial relations.
When defending high levels of executive pay, the most commonly heard justification is that they are needed to attract, motivate and retain the best executives for Britain's leading companies. Underlying this view is a belief that CEOs are highly-mobile, market-responsive workers who will quit one job and move to another as soon as it is financially beneficial.
Yet it is difficult to find good evidence on the extent of mobility among top executives. Recent research from Paisley Business School suggests most CEOs had not been lured from rival companies but had risen through the ranks, often after a long-term employment relationship.