Company Executives’ Excessive Salary and Bonus Payments.
There has been considerable discussion, around the world, concerning the excessive payments being made to executives of companies. In spite of the financial crisis, that originated from the poor management decisions made by so many of these company executives, payments to them have remained at unacceptable high levels.
In Australia, the Government is considering legislation which could restrict such payments being made without shareholder approval.
There is a simple solution to this problem.
Each company should set up a special fund into which a proportion of monies from retained earnings are placed. Out of this fund, each year, should be paid shareholders dividends, directors fees, executives bonuses,incentives and golden handshakes.
Each year, the shareholders should determine what proportion of these funds will be allocated to the payment of directors fees, executive bonuses, incentives and golden handshakes ( say 5%) and what proportion will be paid out to shareholders in dividends (say 95%). Now in a year where say $100 million is available for payment from that fund, $95 million should be paid to shareholders in dividends and the directors can then determine how the $5 million will be paid out to themselves in fees and to the executives in bonuses, incentives and golden handshakes.
There should be an understanding by the directors and executives that total payments to them cannot exceed the proportions set down by the shareholders. In a year where the directors elect to not pay a dividend to shareholders, then there should be no payment made in that year to the directors or executives in the way of fees, bonuses,incentives and golden handshakes. It is about time that these officers of the companies realise that their first responsibility is towards the shareholders who have provided the funds for the enterprise.
Now this will resolve the issue of high bonuses and incentives being paid to executives when the company is not doing very well. Many companies have paid substantial amounts to executives in years when company profits have been deteriorating and even when shareholders dividends were reduced or not declared at all. What a disgrace!
