{"id":4596,"date":"2021-06-28T21:14:13","date_gmt":"2021-06-28T19:14:13","guid":{"rendered":"https:\/\/thefinanceghost.com\/?p=4596"},"modified":"2021-06-28T21:14:13","modified_gmt":"2021-06-28T19:14:13","slug":"caretakers-take-care-of-themselves","status":"publish","type":"post","link":"https:\/\/thefinanceghost.com\/index.php\/2021\/06\/28\/caretakers-take-care-of-themselves\/","title":{"rendered":"Caretakers take care of themselves"},"content":{"rendered":"

T<\/span>o be clear \u2013 I\u2019m a capitalist. However, I believe that the reward must reflect the effort and innovation applied in achieving that reward.<\/p>\n

For some time, corporate executive remuneration has annoyed me.<\/p>\n

In my mind, there are only three types of CEOs:<\/p>\n

    \n
  1. Founders of companies who retain the CEO role as the company expands and lists on public markets;<\/li>\n
  2. Professional managers who lead transformational strategies for companies, redesigning and growing them in such a way that their actions appear highly entrepreneurial in nature; and<\/li>\n
  3. Caretakers.<\/li>\n<\/ol>\n

    This article isn\u2019t aimed at the talented visionaries and business icons who fall into the first two buckets. These people create jobs and shape industries. They deserve to drive Italian supercars and have mansions by the sea.<\/p>\n

    I told you I\u2019m a capitalist.<\/p>\n

    Instead, this article is aimed at the caretakers. The also-rans. The people who take the reins at healthy companies and make very little difference over several years.<\/p>\n

    Every CEO in the third bucket likes to believe that he or she is in the second bucket. It simply isn\u2019t true.<\/p>\n

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    Are people REALLY that good?<\/h4>\n

    I remember when Gareth Cliff left the morning show on 5FM. I was a student at the time and I really enjoyed his show, although I didn\u2019t agree with everything he said. He left to start Cliff Central, a business that was ahead of its time.<\/p>\n

    I have no insight into how successful that venture has been. However, I do remember that there was a lot of noise made about how his fan base would stop listening to 5FM and would find ways to listen to his obscure internet-based radio instead.<\/p>\n

    Remember, this was a time long before podcasts. I think I was using a BlackBerry!<\/p>\n

    Guess what happened the morning after he left? That\u2019s right, I turned my radio on and listened to 5FM. I don\u2019t think I\u2019ve listened to a single minute of Cliff Central.<\/p>\n

    My point is that there is far more to most businesses than a warm body in a chair unless the business has no inherent value. 5FM clearly has inherent value. The power of Cliff\u2019s show lay in the distribution that 5FM brought to the table. He was good, but he wasn\u2019t SO much better than every other DJ that the value of distribution was dwarfed by his abilities.<\/p>\n

    Most CEOs are good, but not SO good that their presence vs. another executive makes an enormous difference to the value of a company.<\/p>\n

    So why do some of these people think it is ok to be paid eye-watering amounts for average performances? Even more importantly, why are independent boards so inept at managing these egos?<\/p>\n

    Don\u2019t get me started on \u201cindependent\u201d boards<\/h4>\n

    Steinhoff. Tongaat. EOH. If independent directors did their jobs properly, these crises wouldn\u2019t happen. Perhaps the bigger question is: can their jobs be done?<\/p>\n

    The board packs are prepared by the executive management team. Needless to say, they don\u2019t use slide 3 to come clean on the extent of fraud in the business. They also don\u2019t use slide 4 to discuss the numerous problems in the business and the fact that several staff members fantasise about a version of Corporate Cluedo, where the staff do terrible things to certain executive managers in the canteen using a steak knife.<\/p>\n

    The independent directors receive the board packs and ask questions at the board meeting based on what is in the board packs<\/em>. If that makes you warm and fuzzy at night about governance, then good for you. To me, it feels like a monumental waste of time and resources.<\/p>\n

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    What do remuneration committees do?<\/h4>\n

    Good question. In some cases, I\u2019m honestly not sure.<\/p>\n

    Theoretically, this committee comprises of independent directors who make sure that executive compensation is market-related and fair. Expensive benchmarking exercises take place, which help specialist advisors pay off their houses.<\/p>\n

    To be fair, most companies get it right. The executives are paid a reasonable amount. I generally feel ok about cash salaries and bonuses under R10m for CEOs. That\u2019s still a huge number and more than sufficient reward for the level of risk and sacrifice taken on by executive leaders. Remember, this excludes the value of share options, which can take total remuneration to over R20m.<\/p>\n

    For some, this simply isn\u2019t enough. Nothing will ever be enough.<\/p>\n

    Government officials learnt from the best: the private sector<\/h4>\n

    In the public sector, it\u2019s called corruption and is illegal. In the private sector, it\u2019s called a golden handshake and is legal.<\/p>\n

    Make no mistake \u2013 the morality is exactly the same, especially when the backdrop is an economy that has shed jobs because companies embarked on significant retrenchment programmes.<\/p>\n

    Let\u2019s assume an executive gets a going-away present of R20m in cash. The average corporate employee probably makes around R300k a year. Instead of making a wealthy person even wealthier for literally no reason, more than 65 people could\u2019ve kept their jobs for a year. That would mean 65 families who wouldn\u2019t be going through financial hardship just so someone can buy another yacht.<\/p>\n

    Caretaker CEOs don\u2019t have proper skin in the game because they don\u2019t own much equity. They come in as professional managers and they leave as professional managers, except they are far wealthier thanks to a carefully designed suite of Key Performance Indicators (KPIs).<\/p>\n

    Worst of all, if the KPIs aren\u2019t achieved, there\u2019s usually a golden handshake to get rid of the executive in question. These caretakers don\u2019t have much downside risk, yet the upside is enormous.<\/p>\n

    The investment community is fighting back against caretakers. It\u2019s high time that the vote on the remuneration policy was taken more seriously.<\/p>\n

    An \u201cadvisory vote\u201d is water off a duck\u2019s back for a caretaker hopping and skipping to the Ferrari dealership.<\/p>\n

    [the_ad id=”3234″]<\/p>\n","protected":false},"excerpt":{"rendered":"

    To be clear \u2013 I\u2019m a capitalist. However, I believe that the reward must reflect the effort and innovation applied in achieving that reward. For some time, corporate executive remuneration has annoyed me. In my mind, there are only three types of CEOs: Founders of companies who retain the CEO role as the company expands and lists on public markets; …<\/p>\n","protected":false},"author":2,"featured_media":4598,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[26],"tags":[966,685,970,974,972],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts\/4596"}],"collection":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/comments?post=4596"}],"version-history":[{"count":0,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts\/4596\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/media?parent=4596"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/categories?post=4596"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/tags?post=4596"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}