International blue-chip companies are moving to reduce the cash element of their executives’ compensation packages as the effects of the global financial crisis continue.
The senior team at Barclays, including CEO Bob Diamond, will be taking home less this year, as will Goldman Sachs boss Lloyd Blankfein, whose salary is set to decrease by 35 percent. A press release from Jack Hammer Executive Headhunters says Amazon’s Jeff Bezos and Microsoft Corp’s Steve Ballmer both earn less than $2-million per year in cash compensation. At home, Absa CEO Maria Ramos has deferred a R14-million bonus due to her.
Debbie Goodman-Bhyat, managing director of Jack Hammer Executive Headhunters and local partner of IRC Global Executive search partners, says the global financial crisis, which started in 2007, is a major factor behind the "tempering of executive pay cheques".
“There has been a very inconsistent and uncertain global economy for the past four or five years. After the big meltdown between 2007 and 2009, some markets experienced a partial recovery in 2010, but many markets plummeted again in 2011, especially in the eurozone.
“What this relatively quick up-and-down cycle means is that a company could have a really good year (coming off a low base from a previous year) followed by another really poor year or two. In order to avoid a situation where executives ‘take the money and run’ after a single good year among many poorer ones, or engage in relatively risky short-term performance enhancers, incentives are now being deferred and linked to long-term pay-out strategies.
“These include taking the money in cash but over a longer period – even a few years – or an annual bonus taken partially in cash, with the rest transferred into shares that vest over a future period. This achieves a few things: a more ‘long-term’ view taken by executives; some ‘stickiness’ in terms of staff retention; and the avoidance of a situation where a company is compelled to pay out big bonuses in lieu of positive performance for one year but where there is no measure in place to address the need for consistency.
“Essentially, more companies are telling their CEOs: ‘No performance, no pay’.”
Goodman-Bhyat says that the “individual performance” aspect of the typical executive remuneration package now accounts for only 30 to 40 percent of it, with the rest linked to the company’s overall performance.
“We continue to see a fundamental restructuring of how top professionals are paid, with the focus moving to financial reward for reducing risk, ensuring ethical governance and fostering a long-term outlook. The past few years have taught many firms some painful lessons and steps are now being taken to ensure that companies derive the best-possible value from their management teams.”