One rule for the few

Shaun Carney wrote an interesting article in The Age about executive pay excesses. He notes that in the good times the public has been passive and excepting of the ever increasing remuneration paid to corporate executives. Now that things are turning down and governments around the world are having to prop-up or rescue companies it is now a cause for outrage. There are many competing arguments to justify and explain the escalating pay, but none have proven totally satisfactory and complete.

Is the high pay the economic rent that must be paid to secure rare and extraordinary talent? Explaining it as a reward for risk or exceptional results doesn't fly, because the risk is borne less by the executives than by the shareholders and sometimes taxpayers and their personal contributions to company performance isn't proportional to their rewards.

The pay doesn't necessarily represent rewards for innovation either. English economist John Kay has pointed out in his writings that many innovators aren't the beneficiaries of the wealth their inventions and innovations have generated.

I find what Malcolm Gladwell has written about serendipity, group dynamics and collaborative environments interesting when thinking about how an individual's output can be influenced by external factors. The market is not sophisticated enough to equitably reward all beneficial production, risk taking and innovation efficiently and money is not the singular motivator that it is often mistaken for. Perhaps it is a case of a self-selected greedy elite exploiting a weakness in the corporate governance. There doesn't appear to be a satisfactory way of linking executive performance with longer term outcomes. Relying on executives to rein in their own excesses doesn't fill me with hope.

Paul Woolley's excellent talk on the global financial industry still has me wondering about the evident failure of the market to make "super-profits" impossible through competition.