Executive pay should and can be fair with a longer term focus

Comments on Alan Kohler “Unfair and unstoppable”, 16/06/2009, http://www.businessspectator.com.au/bs.nsf/Article/Unfair-and-unstoppable-pd20090616-T2TA2?OpenDocument&src=sph

If it is unfair, it should and can be stopped. We or the government or the regulators just need to be a bit innovative and creative.

There might be a way of balancing the responsibility and incentives in terms of executive pay.

An executive should be paid a base pay, whatever times of average earnings associated with some sort of the total payrolls of a company. The larger a company is, the higher the base pay for its chief executive.

There might be a need to measure relative performance as well as absolute performance indicators. The relative performance measure can remove some luck factors, that is, if the period is good for everyone or the majority of firms, then the absolute performance measure should be discounted. This will make the executive pay fairer over time as well.

In additional to the base pay, incentive pays should be withhold until sometime later when the full performance for a year or a period can be judged.

In this way, by combining base pay, the size of a company and the longer term view of executive performances, an appropriate balance could be struck, to encourage good performance and avoid short term rent seeking behaviour.