2008 Articles

View From the Top: What Should We Do About Executive Pay?

Boards and senior leaders of financial institutions from around the world are struggling to decide what to do about pay this year-end, and time is running out. After an impressive run of staggering business results and pay to go with it—everything came tumbling down. Now is the time that compensation/remuneration committees must decide how and what to pay top executives this year. While there are few benchmarks to guide these decisions, there are many loud and conflicting voices expressing opinions from the sidelines. Traditional tools like surveys, payout ratios and market trends provide useful intelligence, but there is even more to consider.

Crisis in Asset Management

Building on results of Performance Intelligence, McLagan and Casey Quirk's annual study of asset management company financial performance, this paper highlights the challenges facing asset management firms. 

Stemming the Tide of Title Inflation

While some may look at title inflation as a statistical curiosity, or a “soft” issue, and not a legitimate business concern, we have seen compelling evidence to the contrary. McLagan works with our clients to manage this problem out of their organizations through benchmarking title ratios, defining promotion criteria and improving title processes.

So What Should We Do Now?

​We have spoken to hundreds of firms over the last 60 days and they are all asking—“so what should we do now?” Existing executive compensation programs won’t/aren’t working and executives’ net worth has declined dramatically. There is the very real prospect of zero bonuses, underwater (drowning) options and performance plans that don’t have a prayer of paying out now or in the foreseeable future.

Pay Pressures

As 2008 progresses, and the banking / capital markets business shows limited signs of bouncing back, firms are struggling to think of ways to deliver a reasonable level of compensation. To some degree, this is a problem that is being carried forward from 2007, as many firms did not adjust pay levels downward in a way that corresponded to business results. Payout ratios, which have largely been a constant for mature businesses, increased in unprecedented and unsustainable ways.

Where Are The Villains Now?

In this current crisis, pain is widespread and where there is pain there is a search for villains. As a result, there is likely to be broad and deep investigation into Wall Street’s compensation plans. The outcome of this work could be the most significant shift in the compensation philosophy and plans since firms went public. It is clear that regulatory bodies are taking a hard look at this topic at this very moment.