Harvard professor says that activist investors are the solution for the executive compensation problem
Amec – the Association of Capital Market Investors – held at its headquarters, on February 24th, an exclusive breakfast for members that was graced with the presence of Jesse Fried, Professor of Law at Harvard Law School. The topic under discussion during the event was “the executive compensation and the role of investors.”
The free event started with a speech delivered by the professor, followed by a debate among all attendees.
The professor talked about the progress of the debate on the compensation issue in the United States, with focus on the frustrated initiatives to regulate it based on the heavy-handed law enforcement that can eventually result in consequences contrary to the objectives. As a result, the compensation ratio between CEOs and employees in general increased from 20-30X to around 400X, stabilizing at the current level of 200X.
According to the professor, realistic compensation packages can only be achieved by expanding the role of activist investors. He made recommendations on what would be considered desirable in terms of compensation packages and on the posture of Board members and investors about the topic. He also addressed the differences between what happens in companies with a controlling shareholder and companies with a diluted ownership structure, coming to interesting conclusions about the Brazilian case.
Control leverage structures were severely criticized.
Several parallels were drawn comparing the US debate and the Brazilian reality.
The video content, exclusive to Amec’s members, is available on demand by e-mail (comunicacao@amecbrasil.org.br).
Amec continues to seek its objective of providing members with an exclusive environment to debate the most relevant and current corporate governance topics. The management compensation topic was one of the most acclaimed debates during the 2015 Amec Investor Forum held on May.
Bill McGrew, Director at CalPERS, opened the panel talking about the major challenges of investing in the Brazilian market and emphasized that the management compensation can be used as an effective tool to align the company’s interests and the sustainable creation of long-term value for investors. The debate addressed issues such as variable compensation versus fixed compensation. Clique here to access the video in YouTube.
