Author : Alberto Salazar
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Book Synopsis Pension Fund Activism and Pay for Long-Term Firm Performance - Should Executive Compensation Also be Tied to Employee Well-Being to Ensure Sustainability? by : Alberto Salazar
Download or read book Pension Fund Activism and Pay for Long-Term Firm Performance - Should Executive Compensation Also be Tied to Employee Well-Being to Ensure Sustainability? written by Alberto Salazar and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses pension fund activism and the use of executive compensation as a financial incentive to align the behavior of executives with long-term firm performance. It explores the merits of broadening a performance metric that can go beyond traditional shareholder value maximization objectives and integrate employees' interest in the context of liberal market economies. This work argues that active pension funds may adopt a broader view of performance that incorporates employee welfare and thus promote the tying of executive pay to improvements in employees' interests. As shareholder value, firm profitability and executive pay increase, executives should make gradual progress on improving employees' income (e.g. living wages, bonus), productivity and innovation, job security, healthy and safe work environment, equality and pension contributions. This is desirable as it will ensure the long-term sustainability of companies and society at large, which will ultimately secure and maximize the financial returns and non-financial benefits for pension funds' beneficiaries. To that end, pension funds may consider encouraging the use of clawback policies to recoup executive compensation when executives fail to integrate employees' interest into a company's performance metric. While such policies depend on the success of shareholder proposals, pension fund activism seeking to introduce such clawback policies is likely to be more successful with both the recent expansion of directors' fiduciary duties that requires directors to serve the interests of, inter alia, employees and the widely accepted environmental, social and governance (ESG) expectations. This is so because such clawback policy proposals will expose directors to potential liability if they ignore their fiduciary duty towards employees. Ultimately, a clawback policy that incorporates employees' interests into pay for performance will make a significant contribution to long-term firm performance, employee wellbeing and the overall sustainability of society. This paper uses examples from two liberal economies, namely US and Canada, to illustrate the argument.