Performance and pay of leaders

A few days ago, someone passed this question to me, “Do You think our leaders' performance commensurate with their pay?”

It is my policy to avoid commenting on any specific person’s performance and pay, even if this person reports directly to me.

I wish to share my personal views on how corporate and government leaders around the world are rewarded.

The prevailing thinking is that corporate leaders should be rewarded based on the shareholder value that they have created. This approach appears to be wonderful in theory. But it has great difficulty in practice.

The current method of measuring shareholder value based on the share price is flawed. The share price can fluctuate wildly based on many factors that are not related to performance of the corporate leaders.

Corporate leaders like this method because they can get fat bonuses in good years, and are not required to pay back these bonuses during the bad years.

It has contributed to big moral risks. Some corporate leaders manipulate the accounts to show big profits in the early years. Remember Enron and Worldcom? Some others take big risks to boost short term profits. Remember subprime mortgages, hedge funds and special investment vehicles?

These corporate leaders earn unimaginable amounts during the good years. When their companies have to write off billions of dollars of shareholder money in the subsequent years, these leaders depart with golden parachutes.

How should government leaders be paid?

It is important that the rewards should attract the right type of people to take the risk and nature of political life.

Monetary reward is an important factor. But it should not be the sole or dominant factor. A passion for this type of work and life is equally important.

We should attract leaders who have the passion to help improve the living standards of the ordinary people. These leaders are willing to put their interest of the public above their personal interest and give up the bigger rewards of corporate life.

They need to receive an adequate remuneration, so that they do not need to supplement their incomes through corrupt means. A remuneration of 10 to 20 of the average earnings of the population, accompanied by a good pension, should be adequate to give a comfortable life. But it will not put them anywhere near the earnings of top corporate leaders and professionals.

I believe that there are many capable people who are willing to come forward for the satisfaction of serving the people and an adequate remuneration. This will be the best type of people to be in government.

If a country cannot find this type of people, then there must be something seriously wrong with the values of that country!

How to assess the performance of a government?

In a democratic society, the government is elected by the people for a term. Ultimately, it is the people that judge the performance of the government.

There are flaws in this system of evaluation by the ordinary people. In some countries, the votes can be bought through “money politics”. People may be swayed by immediate and temporary factors, and may overlook the long term interests.

Someone said that democracy is a bad system, except that nobody can find a better system!

A good government can improve the standard of life and happiness of the people. Economic prosperity is an important factor, but it should not be the only factor. The quality of life, with less stress, more leisure time and security, is also important.

There should be greater equality, fairness and opportunity for all. The weaker and poorer people should not be exploited. People should not have to continue working until they die, unless they really enjoy the work.

The key performance indicator of a government should go beyond economic growth. Some people argue that it should be a “gross national happiness”. Three international conferences have been organised to promote this concept, the latest was in November 2007 held in Thailand.

The promoters of this concept argue that quality of life indicators should be included together with economic indicators to compile a index to compare the performance of governments.

The performance of a government is best measured by the happiness index. If the majority people are happy, they are more likely to re-elect the existing government.