Shareholder values
How shareholders choose to vote is above all a private matter. Investors are free to tell the companies they own to pursue goals besides profit. One goal can be concern for safety and the environment: complaints from faith-based and other investors in BP have grown louder since the Deepwater Horizon explosion and oil spill. Another is fair pay: the Church Investors Group wants pay ratios between top executives and the lowest-paid tenth of employees to fall below 75 .
Is such shareholder activism also in the public interest? It could be. If more owners thought, like some faith-based investors, that they had a duty of stewardship, they could provide a useful check on managers. No lofty motives are needed for this to be in the interest of shareholders, whose money is after all the first to be lost to overly risky strategies or to remuneration that extracts more value from a company than it adds.
Whether it is good for society at large, too, depends on what shareholders use their activism for and to what degree they succeed. As to the former, taking a stand on executive pay is a healthy change from the usual apathy. Depending on the warmth of relations between executives and pay committees, “pay for performance” often turns into pay without the performance. Incentives are easy to game and can undermine people’s intrinsic motives for doing a good job.
If more institutional investors join the activist game it could even have an effect. Crude caps on pay multiples may not be the best solution. But they would hardly scare executives away. Most institutions are “universal investors” and if the same rules apply to all their holdings, managers feeling under the thumb would have nowhere else to go. Unless it is where ethical investors fear to tread: tobacco, alcohol and pornography. Perhaps it is all a divine plan to put greedy executives on the wages of sin.
Whether it is good for society at large, too, depends on what shareholders use their activism for and to what degree they succeed. As to the former, taking a stand on executive pay is a healthy change from the usual apathy. Depending on the warmth of relations between executives and pay committees, “pay for performance” often turns into pay without the performance. Incentives are easy to game and can undermine people’s intrinsic motives for doing a good job.
If more institutional investors join the activist game it could even have an effect. Crude caps on pay multiples may not be the best solution. But they would hardly scare executives away. Most institutions are “universal investors” and if the same rules apply to all their holdings, managers feeling under the thumb would have nowhere else to go. Unless it is where ethical investors fear to tread: tobacco, alcohol and pornography. Perhaps it is all a divine plan to put greedy executives on the wages of sin.
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