With the size of executive pay packets rocketing, shareholders and critics of excessive compensation are calling for restraint on the number of zeros decorating their CEOs' monthly wage slips. If Gulf companies are serious about future listings on international exchanges, it is worth paying attention to the debate.

Backed by powerful pressure groups, these critics are an increasingly vociferous force - one that is becoming harder to ignore. The bottom line, as perceived by many, is that chief executives are paid more than they deserve and fail to provide value for money for the companies they oversee. Increasingly this appears to be the opinion not only of dissatisfied shareholders and critics of excessive pay, but of corporate directors themselves.

In a survey released recently by the National Association of Corporate Directors, 77% of company chiefs admitted that in relation to performance, their pay was either "too high"or "somewhat high." In August, the US Institute for Policy Studies reported CEOs of large US companies earned as much in one day as average workers in the whole year. Executive pay has surged; and the gulf between the world's rich and poor is widening.

The booming private equity industry has done much to exacerbate the controversy. Individuals at the top of their game here earn eye-watering amounts. Senior figures at PE giant CVC Partners have recently been awarded record payouts of US$10m. The issue became so contentious in the UK that radical changes in the tax system have been proposed. These will see PE groups pay 80% more tax on "carried interest" stakes held in their funds.

Dissatisfied investors are further riled by the severance packages awarded to ousted executives who fail to perform. In January, Robert Nardelli, former CEO of Home Depot Inc, the largest DIY retailer in the world, was fired after an unremarkable six years at the company's helm. But a ‘golden boot' package worth an estimated US$210m, including a US$20m cash severance payment, helped to ease him through the door. Gulf businesses looking to list on overseas exchanges, particularly in the US, can learn valuable lessons from the debate. Investors are an ever more demanding bunch. Now it is not just fiscal transparency that they are after, but complete corporate transparency.

There are several ways by which executive pay could be made to reflect performance. Not least the introduction of objective methods of measuring the success of executives. Second, aligning pay with company performance based on results consistent with the interests of investors, and granting additional equity awards tied to future corporate performance, would focus executives minds on the job. Finally, full disclosure of performance targets, thresholds and peer groups used by boards to determine executive compensation would enable shareholders to make informed assessments of executive pay packets.

Certainly, if executives are to be paid such huge sums of money investors are well within their rights to demand transparent and efficient corporate governance structures. But they should also acknowledge the fact that when corporate bosses deliver the goods, their achievements should be recognised with appropriate remuneration.

Underperforming companies with conspicuously highly paid executives at their helm are an obvious target for activists. It seems the time has come for their compensation committees to address the concerns of investors and brave the boardroom with some strong negotiating tactics.

If Gulf companies are serious about listing on exchanges in London and New York, they need not only to be aware of the pressures that dissatisfied investors are able to muster: they must also be prepared to make efforts to meet these demands.

Comments (15)

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Dubai
Posted by john, New York, US on 25 May 2008 at 16:48 UAE time


Dubai's real estate watchdog on Sunday launched its own magazine in an effort to address investor concerns over a lack of transparency in the market.

Len's request for art galleries in the UAE
Posted by stuart mayhead, Abu Dhabi, UAE on 21 April 2008 at 09:21 UAE time


Hi Len if you visit www.artinthecity.com you will find and Art Map of Abu Dhabi, Dubai and Sharjah which shows all the local galleries and has a calendar of events noting all the exhibitions. If you sign up for them you will receive fortnightly reminders.

art galleries
Posted by len on 20 April 2008 at 14:15 UAE time

I'm looking for modern art galleries in your country. Can you help me with a list?

Editor's Reply Kindly visit www.timeoutdubai.com for a full list of art galleries in Dubai, or www.timeoutabudhabi.com for a full list in the capital.

commnet
Posted by Nabil Alwakidi, jeddah, KSA on 13 April 2008 at 10:24 UAE time


Dear Abdulkareem,

Perfect person on the right place, very difficult to find some one like you. this comment will show you how much we like your job.

Best of luck for everything!

Cheers,
Nabil Alwakidi

Success
Posted by shahla naim, AbuDhabi, U.A.E on 19 March 2008 at 11:18 UAE time

Success, from my point of view is 10%luck, 40%study, 50% hard work. Upon reading this article, I think am still at the first 10%.

Very proud to be a muslim after reading this article.
Posted by Nasrin Quraishi, Chennai, India on 5 March 2008 at 15:03 UAE time


Good Evening,

I am very happy and proud that I am living in this world where HRH Mr.Abdullah Al Awadi is living. I pray Almighty God to work under him atleast for a year.

Thank you

networking with your esteemed Arabbusiness
Posted by Safwat Faroun, Ramallah, Palestine on 13 February 2008 at 19:20 UAE time

I am currently residing in the west bank, and I am looking for jobs. Your Arabbusiness could be of indispensable value to me. Keep up the good work!

Abdullah Al Awadi's name in Arabic
Posted by Jehad M. Shaban, Kuwait, Kuwait on 9 December 2007 at 15:57 UAE time

As per your Arabic article of the top 100's CEO's in the GCC, would you kindly correct Mr.Abdullah Al Awadi's name in Arabic to: عبد الله العوضي and the company name to: Al-Ahlia Holding Company. Thank you.

Saudi ARAMCO
Posted by Nand, Riyadh, Saudi Arabia on 9 December 2007 at 11:41 UAE time


Wonder what standing Saudi ARAMCO has? Is it not among the most admired companies in the GCC?

Posted by Prabal Rai, kathmandu, nepal on 6 December 2007 at 12:07 UAE time


Dear Sir,
How possibly I can contact direct to Amir Alwalid Bin Talal for my own personal plea concerning my occupational hazzards in compny own by him? Please guide me in this regards.
Yours truly
Prabal Rai
Kathmandu Nepal

Energy Industry
Posted by Ibrahim, Abu Dhabi, UAE on 6 December 2007 at 09:43 UAE time


I've worked in the oilfield since 1989, mostly in the UAE but also all over the MENA region, and this is the first time I've heard of this company (SS Lootah). What about Al-Dulaimi group (Qatar) or Mohammed Barwani (Oman) or AlMansoori (UAE)? I wonder what the definition of "Energy Industry" is? I suspect the people who selected the winners don't understand how our industry works.

Show all comments

Interesting information
Posted by Omair bin Zahid Al Husain on 5 December 2007 at 22:07 UAE time

It is interesting information. Being an entrepreneur myself, I don't mind knowing who could be of advantage to me and where I can find products and/or services I need. I wonder what was the criteria for selection though, but a wiseman said that the modern day winner in the corporate world is the one who could "learn, unlearn and relearn!" Keep us up to date Arabian Business.com. Thank you very much.

Wonderful Article
Posted by Nikhil Sindhu on 5 December 2007 at 19:03 UAE time


Thank you Anil for the insight about an extraordinary person.

Amazing
Posted by Faris AlQURESHI, Riyadh, Saudi Arabia on 5 December 2007 at 12:53 UAE time


Dear Anil,

The best best interview for the most admiring and decent personality.

Best of luck for everything!

Cheers,
Faris

CEO Vision Drives the list
Posted by Prof Philbert, Salmiya/ Kuwait, Kuwait on 5 December 2007 at 10:57 UAE time


If the company is going to achieve something of some recognition, they must follow three I's - Innovation, Infrastructure and Integration.

Innovation is importnat to give the company an ability to extend the product and service life cycle from point of stagnation to new thinking - a sort of sigmooid curve that repeats itself - saying in simple words - an old wine in a new bottle.

Infrastructure for aiding innocation is another key dimension that can add value to corporate growth. A CEO must take a balaced scorecard to organizational development.

Integration is keeping all elements of the orgnization togehter and take a unified approach to the big picture.

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