Employee Benefits Summit 2012: High pay decisions may not always be justifiable

The justifications for high executive pay typically lie in talent ideology, however, there are reasons to be sceptical of this, according to David Bolchover, author of Pay check: Are top earners really worth it?

Speaking on the second day of the Employee Benefits Summit 2012, he said that the top reason for this is that talent ideology itself has never been properly defined. “If we can’t define something, how can we strive so hard to reward it with extreme wealth?” he asked.

Bolchover added that although it is often felt that chief executives (CEOs) need to be offered large incentives as a motivational tool, organisations should question at what level an individual reaches their maximum level of motivation. “Lower motivation is not an inevitable consequence of lower reward,” he explained.

High pay and incentives are designed to aid the recruitment and retention of people who may have their heads turned by the large packages offered to other CEOs, which are justified on the grounds of personal risks. However, CEOs typically face no personal financial risks and they cannot be held personally for an organisation’s demise. “If they are not responsible, why should they be so handsomely rewarded when profits are up?” asked Bolchover.

He added that basing executive pay decisions on the packages received elsewhere within an industry can also have repercussions. “Comparisons speed up executive pay in boom times and slow it down in recession,” he said.

“The consequence is systemic perpetuation of high pay, penalising shareholders and, ultimately, the man on the street. Only by bringing talent ideology into conscious decision-making, can we expose its inefficiencies.”

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