Putting Executive Pay in Context

By David De Cremer

Before the financial crisis executive pay in the finance sector had skyrocketed; bonuses were no longer given to reward hard and successful work, but rather automatically – no matter what the employee performance was. Below David De Cremer discusses the state of executive pay now and whether organisations will curtail it because they have to or because they should do – ethically speaking.

In the aftermath of the financial crisis no topic has received more attention than the payment of bonuses. Suddenly the issue of money, and particularly excessive amounts of it, was put on the societal and political agenda and it hasn’t really left the public discussion arena since. Even today, executive pay is leading to heated debates and politicians do not shy away from being the moral authority in the game by making regular statements that although many of the reimbursement systems are not illegal they do suffer from a lack of integrity.

This brings back memories of the emotional response of the then UK Chancellor of the Exchequer, Alistair Darling, who announced that he wanted to impose a one-off tax on banks to ensure that some of the excessive bonus payments were directed back to the taxpayer. Since then banks have been focusing on ways to rethink their pay systems, reduce salaries and find alternative means of keeping the highly paid amongst them aboard. Of course, the issue of pay is not only an issue in the financial industry but also in any larger company where board members may ask for the extra million to make them stay and feel happy in what they are doing. In these firms, money as the primary motivator is as present as in the banking context.

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.