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Can greed be good? Carlos Ghosn, CEO compensation and a skeptical Japanese public

After Carlos Ghosn's shocking arrest Monday, many of his most ardent supporters were left to reconcile their positive image of…

After Carlos Ghosn’s shocking arrest Monday, many of his most ardent supporters were left to reconcile their positive image of the man said to have saved Nissan Motor Co.

Over de volgende paar dagen, als de details van de zaak ontstonden, verscheen de schandalen minder en aberratie en meer een herhaling van het een dorne kwestie waarop Ghosn vaak tussled met

Ghosn has for years faced skepticism among the Japanese public about whether he, or any company head for that matter, was worth a massive paycheck.

While there is no consensus as to the long-term merits of paying executives, based on company results, a policy pushed for by Prime Minister Shinzo Abe’s government &#821

1; at least in

Ghosn’s first clash with Japan’s unique views on compensation and corporate life began not long after his arrival at Nissan in 1999. He initially faced pushback about his plan to link pay with performance, a natural proposition to many Western observers but still a rare practice among traditional Japanese companies.

“Like other Japanese companies, Nissan paid and promoted its employees based on their tenure and age. … Inevitably that practice broke a certain degree of complacency, which undermined Nissan’s competitiveness, “Ghosn wrote in an article published in the Harvard Business Review in 2002.

” We also revamped our compensation system to put the focus on performance, “he wrote. “I det traditionelle japanske kompensationssystemet, ledere får ingen aktieoptioner, og næsten ingen incitamenter er indbygget i lederens betalingspakke … vi ændret alt.”

Og de ændringer på kompensation blev forlænget til Ghosns eget betalingspakke på Nissan,

The plan to turn Nissan around also included cutting jobs and streamlining inefficient business practices.

“There were societal criticisms (of Ghosn’s salary) in the French government, and even within Nissan. Så hvis han tok mer lønn, ville han ha fått mere kritik, som er sikkert en motivation for at dekke hans reelle kompensasjon, sier Hideaki Miyajima, professor of commerce at Waseda University.

“But because he revitalized Nissan and made it Miyajima said, explaining that market reaction can be one measure of whether an executive is overpaid.

Although his lavish pay made waves in the country, it was still well below levels seen in the United States, a fact that Ghosn would often point out at annual shareholder meetings.

General Motors Co. CEO Mary T. Barra, for example, hauled in close to $ 22 million in 2017, $ 13 million or which came in the form of stock incentives, according to data from AFL-CIO Executive Paywatch.

These kinds of stock rewards were what Ghosn pushed for his own pay.

Forty-eight percent of CEO compensation in Japan is derived from the base salary compared to 28 percent in France and 10 percent in the US, according to an analysis of CEO pay in fiscal 2017 conducted by Willis Towers Watson, a company specializing in executive compensation.

Ghosn, however, was not alone in pushing forward the idea that top-level workers should have the potential to increase their earnings.

The Abe government has pushed Japanese companies to tie executive pay to performance, incentivizing risk-taking among management as a part of a broader plan to reform the corporate sector.

The Ministry of Economy, Trade and Industry published a report in September entitled “Executive Remune ration to Encourage ‘Offensive Management’, which compared Japanese executive compensation to pay levels in other industrialized nations and also outlined ways to offer remuneration beyond only base salaries.

“Currently, there are few companies in our country that introduce performance-

“We need to escape from low-risk low-return, improving” earning power, “” the report continued. “[19659002] Takuji Saito, a professor specializing in management at Keio University, agreed that the lack of performance-based pay was at least one factor leading to risk aversion among some Japanese companies.

“Even if Japanese managers improve the company’s performance, they will not be rewarded.

One often cited example of “Under these circumstances, the management will aim to be safe, while not taking risks.”

One often cited example of Japanese corporate timidness is the eye-popping ¥ 259 trillion in cash held by nonfinancial companies as of September, according to Bank of Japan data.

Correspondingly, this has led to an average return on equity of around 8 percent for Japanese companies, far lower than US companies that average around 15 percent, according to a 2018 study released by the Policy Research Institute.

But even in the US, where massive pay packages are more widely accepted, the line where greed becomes detrimental is a subject of intense debate.

An influential academic paper published in 2016 found that for companies listed on US stock exchanges, “Measures of Chief Executive Officer (CEO) excessive compensation are negatively related to future firm return.”

The paper, published by a team of researchers from the University of Utah, Purdue University, and the University of Cambridge, also found that “Overconfident CEOs receive high excess pay undertake activities … that lead to shareholder wealth losses.”

Psychological research, conducted in a lab and published in “The Review of Economic Studies” in 2009, also found that “with some belangrijke uitzonderingen, zeer hoge beloningsniveau’s kunnen een nadelig effect hebben op prestaties.

De realiteit is dat in ieder geval een soort extra druk voor prestaties waarschijnlijk een rol in motivatiearbeiders speelt, maar als onderzoek heeft aangetoond,

Zuhair Khan, an equity analyst at Jefferies in Toky, said: “The fine details of how pay is distributed is likely to be an important factor in determining whether a major salary is motivational or detrimental.

“Companies where all board members own around a million dollars worth of shares outperform massively year after year,” he said.

However, Khan added a key caveat: “What is important is that not only one person owns a lot of shares, as was the case at Nissan.”

While Waseda University’s Miyajima acknowledged that the Ghosn scandal may serve As a feed for those pushing back against the practice of rewarding employees through performance, he rebutted the notion that there are no benefits of incentive-based compensation.

“In Ghosn’s case, he was going beyond the legal paths to receive higher pay, “Miyajima said.

” In the usual case, the company’s board could stop this behavior, but the biggest problem is that they did not have the system to stop his greed. “

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