EDITOR’S NOTE: Who is rowing your investment boat?

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The debate around the alignment of executive remuneration with shareholder interests is starting to get heated

. It’s a prickly topic. But there is a growing view that it is far more prudent to pick a share in a company where executive management has real skin in the game rather than to invest in a business that is managed by professionals who are paid many millions of rand for their services but own only a few or no shares themselves.

If a CEO stands to earn more in dividends and share price gains than from their executive package, it stands to reason that they will be focused on the key operating metrics that will ensure sustainable long-term performance. Capital allocation will be carefully considered. On the other hand, the criteria used to measure professional managers’ performance might not always be in shareholders’ longer-term interests.

 

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