Excess in pay and punishment

Finally, someone has a solution to the problem of excessive executive remuneration. Sadly, it’s a little more robust than residents of democracies such as South Africa are probably prepared to consider. Nevertheless, we should try to overcome our squeamishness and consider what, if any, elements of the solution could be adopted.

Let’s face it, things on the remuneration front have got a bit out of hand and no amount of pleading by us little folk has dented the made-up world of remuneration committees and remuneration consultants. They continue to insist inclusion in our executive ranks is the outcome of the scientifically precise intersection of supply and demand. It is, we are assured, a keen reflection of the workings of the free market and that, essentially, the most suitable person is in the job at all times.

That might trigger a bit of cognitive dissonance for anyone who looks closer at the five- and 10-year track record of some executives and the companies they lead. Patchy performances are frequently at odds with the accompanying smooth and strongly upward remuneration of the period.

It’s something of a relief that this is not just a South African problem it’s become one because it is first and foremost a US and UK problem. South country’s corruption-busting Central Commission for Discipline Inspection (CCDI) on the business sector.

The CCDI is almost as old as the Chinese Communist Party (CCP), and was set up to discourage corruption and malfeasance in the organisation. But it wasn’t until Xi took over in 2012 that the CCDI became a major force, prompting many commentators to claim he was targeting political rivals as much as corruption. Within 10 years it had investigated and punished 4-million party members, and had also begun to extend its reach beyond the CCP and China’s borders.

Now the CCDI is targeting “hedonism” and “high-end lifestyles”, with Xi particularly worried about the financial sector, which, he has long argued, is failing to serve the broader economy. According to the Financial Times, since February more than a dozen executives have been investigated or penalised as the CCDI began a fresh drive to “resolutely” fight misconduct in the sector and “eradicate executives’ ‘wrongful pursuit’ of becoming financial elites”. Some, such as Cong Lin, former executive at Industrial & Commercial Bank of China, the single largest shareholder in Standard Bank, have disappeared.

In addition to the financial sector, the CCDI is also targeting oil companies and tobacco groups.

Understandably, nobody’s waiting for a vote on bosses’ pay. Executive salaries and bonuses at banks and brokerages are being cut back significantly; even financial regulators are accepting pay cuts.

The toughened resolve on “high-end lifestyles” is part of Xi’s “common prosperity” drive, launched a few years ago to target excesses and inequality which threaten the country’s stability.

A serious threat to stability is how you might describe the recent eye-watering sums paid to European and US oil executives. They have enjoyed huge pay increases thanks to a war that has made life much more difficult for scores of millions of people, and close to impossible for hundreds of thousands.

It’s a bit worrying that Xi’s approach is beginning to seem a reasonable response to an out-of-control situation.x