As a famous Harvard Business Review article of 25 years ago put it, the key question to ask in the executive pay debate is not how much a Chief Executive is being paid, but how.

The ‘how much’ question may give you a pounds and pence figure for what an individual executive has been paid. But what matters is how they are rewarded – what proportion of their pay is performance related, what metrics are used to measure that performance, and over what time period?

If the HBR authors were writing today, they would probably add a third question: when? Various elements of an executive’s awards may be held back for some years, open to being clawed back if performance turns sour. In other words, investors and interested observers should ask when an executive is free to call the money their own.

The reasoning behind incentive pay is well understood by shareholders – if a given Chief Executive delivers outstanding leadership and creates considerable shareholder value, then surely that individual should share in the gain. If shareholders are collectively better off to the tune of billions, then why begrudge the executive team their millions?

The logic notwithstanding, the UK public policy and media debate remains overly focused on the ‘how much.’ In contrast to the US, where there is no perceived ceiling in terms of what a successful Chief Executive should be paid, providing they’ve earned it, the UK debate continues to battle with the perception that executive pay above a certain level is just plain wrong, however well-deserved in terms of company performance.

Executives may indeed feel that this state of affairs is unreasonable. After all, there are not many professions where every last penny of reward is laid bare for all the world to see. And, as headhunters, we certainly know of some talented executives (some, not scores) who avoid the glare of public company executive roles for just this reason.

But even if executives don’t like the climate in which their remuneration is set and disclosed, they would do well to recognise it. The ‘politics of envy’ may well be at play, but so too society can legitimately ask questions about inequality and the extent to which some professions are vastly better remunerated than others. There are fair questions to be posed and remuneration committees should consider them.

More importantly, the UK needs a grown-up conversation about whether there is a quantum of reward that is simply too much, regardless of whether it is earned by a pop star, football player, TV celebrity or Chief Executive. It may be that there are individuals in any number of fields, who, by dint of being possessed of world class talents, should be exceptionally well paid. If so, the best executives should be considered in that group. 

About Odgers Berndtson

Odgers Berndtson is a global firm helping organisations to find and develop the best talent for the most important positions. It provides executive and board search, leadership development and executive assessment services for the world's top-tier organisations ranging from listed to family-owned businesses, equity-backed enterprises to associations and public institutions.

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