There was spirited debate among the panelists and the audience – which included many CEOs, a number of whom I was gratified to see are clients of KPMG firms – discussing everything from issues of governance to corporate greed.
In my view, where there are issues of excessive executive compensation it is typically a problem of rewarding poor performance. It is an outgrowth of the kind of “quarterly capitalism” that we saw in the financial crisis, which was defined by a culture of short-termism and excessive risk taking. The good news is that the market is responding, with recognition of the need to shift to responsible capitalism. Boards are much more focused on remuneration – in fact the busiest person on boards is becoming the remuneration director. Well-run businesses want to pay competitively for long-term sustainable performance.
Short term share price is clearly not the best measure – paying for sustainable performance means considering all of a business’ stakeholders, and taking into account what is driving long term value, including areas such as innovation and brand/reputation. Risk also needs to be a critical component of measuring quality growth and performance. It’s up to the board to define the company’s risk appetite and assign proper accountability for those risks. The board must be aligned with the CEO, and the CEO needs to ensure the company strategy is aligned with, and understood by, the workforce. In the end properly addressing issues of compensation, as with almost everything in business, comes down to leadership.