AIB takes the hint that it's time to halt executive pay 'gravy train'
THE €500,000 that will be paid to David Duffy for running Allied Irish Bank sounds about right. It also proves the Government's contention that it is possible to attract talent without paying seven-figure salaries.
Many other companies listed on the ever-shrinking Dublin Stock Exchange should remember this when it comes to hiring their top executives in future.
Like their British counterparts, Irish executives have been plundering the companies they work for in recent years with disastrous effects on their business and society in general.
Salaries worth millions are still being paid to chief executives who have overseen massive wealth destruction because they backed the wrong strategies during the boom.
This is not true of everybody of course. Local champions such as Glanbia and Icon pay sensible money but financial services companies are still completely over the top.
On the same day that Mr Duffy's appointment was confirmed, an independent report into boardroom salaries in the UK found that British executives are still receiving sickening pay rises despite workplace failure.
Following a year-long study, the government-sponsired High Pay Commission said salaries of some top executives in Britain had soared by more than 4,000pc over the past 30 years. The average wage has risen by about 300pc over the same period.
"Stratospheric increases in pay are damaging the UK economy -- distorting markets, draining talent from key sectors and rewarding failure," the High Pay Commission reported.
"There appears to be little truth in the myth that pay must escalate to halt a talent drain in executives.
"The growing pay gap between the top 0.1pc and everyone else is increasing public disillusionment, damaging trust and fuelling the view that business leaders are in it for themselves," it added.
The commission also found that the head of Barclays bank now earns 75 times the company's average salary, compared with 14.5 times in 1979.
At energy giant BP, its chief executive earned 63 times the company's average salary, compared with a multiple of 16.5 three decades ago. And so it goes on.The figures for Ireland are probably not as bad but it would be interesting to know the ratio for our top companies.
The commission urges various reforms including a national body to monitor high pay and placing employees on remuneration committees. These are both good ideas and should be introduced on this side of the Irish Sea as well.
In both countries, pay for top managers is set behind closed doors by a secretive remuneration committee made up of so-called independent directors who are often the golf club friends of the chief executive.
Those committees are in turn advised by management consultants who owe their loyalty to the chief executive who picks them rather than shareholders who must pay these dizzying salaries.
There are no market forces and there are no checks or balances because shareholders are powerless to resist such agreements which are only revealed in the annual reports long after the event.
It is a con that could perhaps be sustained during the good times but it is also one of the reasons that the good times came to an end. Today, it simply makes no sense at all.