Douglas Carswell

10 APR 2017

Shareholder democracy works

The news that BP is cutting its CEO's pay by 40% in response to shareholder pressure proves an important point: part of the solution to soaring corporate pay is more shareholder power.

CEOs aren't taking home huge pay packets because – as some claim – that's just the market rate. On the contrary: corporate executives have seen their salaries rise much faster than the market cap of the companies they run.

This is an example of what's known as the principal-agent problem: CEOs are acting in their own interests, instead of those of the people who own the company. Because the owners have lost control.

One of the reasons the salaries of corporate executives have rocketed to absurd levels is that their earnings are decided by remuneration committees rather than shareholders. And remuneration committees are invariably made up of corporate executives from other companies.

When corporate mandarins sit on each other's boards and award each other's pay, it's hardly surprising that they're getting richer. The system is a closed shop. A self-serving oligarchy.

BP's decision is telling because the shareholders' vote on the boss's pay last year wasn't even binding. Imagine the difference it would make across the corporate world if such votes were. Ordinary shareholders would be able to break the corporate cartel.

To defeat the emerging oligarchy, power needs to be dispersed in all walks of life. It's time for shareholders to Rebel.

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