Leaders and performance remuneration

As part of the interviews of theAFSEthis round table examined the issue of remuneration for leaders of large companies, which have experienced very strong progression in recent years, giving rise to a strong controversy.

The first speaker, Augustin Landier presented his work with Xavier Gabaix on the causes of this increase in remuneration. He first presented the main hypotheses put forward in recent literature:

• Capacity of managers to monopolize annuities: the idea is that boards of directors are not able to properly assess the value of managers or systematically underestimate the cost of stock options for the company ;

• increased business size ;

• Need to compensate for these leaders for changes in their profession (increased risk taking, greater complexity, etc.) ;

• selection process due to greater competition between companies to attract the best leaders according to the phenomenon “ Economics of Superstars ».

The empirical evaluation led by Landier and Gabaix led them to give mainly the increase in upward remuneration for the size of companies (in terms of share capital). Thus, the CEO of the largest American firm would bring around 0.1 % more performance in his business than the boss of the 250^e. Given the sizes of these groups, this can represent tens of millions of dollars more. To attract a better manager, it is therefore enough to pay a salary higher than that offered by other companies. The reference is therefore no longer the absolute performance of the manager but the remuneration to which he can claim elsewhere.

If the explanation is convincing enough, it has been widely discussed. Thus, some stakeholders raised the problem of a certain temporal inconsistency in this hypothesis: it allows to explain why the salary of the leaders has increased since the 1980s, but not why it was almost constant in the previous decades, not taken into account In the article, period when the size of the capital of companies also increased. In addition, the explanation no longer holds if we consider other size criteria, such as the number of employees: it would therefore simply be linked to the phenomenon of increase in the remuneration of leaders up the financial markets …

Marcel Boyer presented a summary of the principles which must govern an incentive remuneration, in a very theoretical presentation entitled the twelve principles of incentive remuneration.

He also underlined the difficulty of empirically assessing the phenomenon. It is indeed necessary to account for both differences depending on the country (including for companies of the same size, the capacity of a CEO to influence his business varying a lot depending on the country), between the sectors, even between the types of position. Thus, Italy is the country where we best pay a manager responsible for human resources, while Germany tends to better pay a manufacturing manager.

These interventions were discussed by Philippe Askenazy and Pierre-Alain Muet. They then gave rise to a long debate.

Philippe Askenazy first noted that the phenomenon is even more important if we exclude from the panel of managers the founders of their own business, who tend not to increase their remuneration. He also underlined the role of institutional specificities such as the composition of the committees fixing the remuneration of the leaders and which are often made up of leaders friends of other groups.

He also pointed out that the significant increase in leaders’ income in a context of wage stagnation and an increase in inequalities lied social cohesion and confidence within the company, and was therefore not necessarily generating economic performance. In his eyes, this justifies greater regulation by public power. First by prohibiting the presence of managers from other large companies in the boards of directors. _ Then, by the more controversial proposition of a “ maximum salary »»