Employee Benefits Summit: Badly designed packages ‘can cause excessive pay’

Badly designed bonus or reward packages are the most likely cause of ‘excessive’ executive pay, according to delegates at the Employee Benefits Summit 2012.

Half of delegates said this was the case, while 43% said the war for talent was the most likely cause.

Speaking in a session entitled ‘Winning the high pay debate’, David Bolchover, author of Pay check: Are top earners really worth it?, said: “The market for pay in the corporate world has been distorted by self-interest. I believe high pay threatens and damages the free market economy.”

Bolchover said there are three main justifications for high executive pay: there must be enough money in the organisation to fund the package, the individual concerned must have sufficientmeasurable impact, and they must be very difficult to replace.

He cited the example of sport, in which some top footballers can be judged to deserve their high pay.

In cases where organisations can justify high pay levels for senior executives, they should ensure this is explained in the public sphere to lessen the likelihood of intense scrutiny or reprisals, he said.

“Unless remuneration committees and remuneration consultants step back from technical details and present robust, cohesive justifications, the onslaught from the public and shareholders will snowball further,” said Bolchover.

“[Organisations] need to invest time and effort coming up with robust and justifiable defences of executive pay in the executive arena.”

Read more about executive reward