Sir, In his article 'Off the leash: what will bring executive pay under control' (24 August), Adrian Michaels cites damming evidence that, in many companies, executive pay has reached excessive levels.
The level of pay is, however, merely the symptom: the underlying causes are the structures of reward schemes and the processes by which they are 'designed'. Structurally, few schemes achieve a link between reward and long-term shareholder value.
In fact, it is demonstrably possible in most schemes for executives to become wealthy over an extended period while shareholders are impoverished. The process by which most schemes are set is designed to create inflation: it is based on benchmarketing to find 'gaps' which are then closed by increasing compensation.
Mr Michaels asks what will bring pay under control. Nothing will until those who control the structure and the process - the remuneration committees - make a stand. They should insist on a process aimed at creating an alignment between executives and shareholders: not one aimed at maintaining parity with other managers.
The structure of the reward scheme should be 'stress-tested' to ensure that, over a period of many years in a variety of scenarios, the experiences of shareholders and executives will indeed be consistent.
Finally, once they have put such as scheme in place, they should leave it - the route for executives to get richer would then be through increased performance rather than more skilful negotiation.
Mark Thomas
Member of the Management Group
PA Consulting
London SW1W 9SR
