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After the shocking arrest of Carlos Ghosn on Monday, many of his most ardent supporters had to reconcile their positive image of the man who would have saved Nissan Motor Co. from the possibility that he had committed many crimes.
But over the next few days, as the details of the case emerge, the scandal appears less as an aberration than as a repetition of the thorny problem that Ghosn often wrestled with shareholders, the media and the media. and his own employees: good?
Despite being seen as the man who brought Nissan back from the brink of extinction, Ghosn has for years been facing skepticism from the Japanese public about whether itself, or any company executive, was worth a huge salary.
Although there is no consensus on the long-term benefits of paying bonuses to leaders based on the results of the company – a policy advocated by the government of Prime Minister Shinzo Abe – at least in the short term, many will remain skeptical about the benefits of greed. driving results.
Ghosn's first confrontation with Japan's unique views on compensation and the life of the company began shortly after his arrival at Nissan in 1999. He was initially upset by his project to tie up Performance pay, a natural proposition for many Western observers, but still a rare practice among Japanese companies.
"Like other Japanese companies, Nissan has paid and promoted its employees based on their mandate and age. … Inevitably, this practice has created a certain complacency, which has compromised Nissan's competitiveness, "wrote Ghosn in an article published in the Harvard Business Review in 2002.
"We have also reorganized our compensation system to focus on performance," he wrote. "In the traditional Japanese remuneration system, managers do not receive any stock options and the compensation system of the latter offers virtually no incentive. We have changed everything. "
And the compensation changes were extended to Nissan's Ghosn payroll package, which exceeded the 2014 billion yen, far exceeding its Japanese rivals.
Nissan's turnaround plan also included job cuts and the rationalization of inefficient business practices.
"There were critics of the company (about Ghosn's salary) in the French government and even within Nissan. So, if he had taken more pay, he would have received more criticism, which is certainly one of the reasons to hide his real salary, "said Hideaki Miyajima, a business professor at Waseda University. .
"But because it revitalized Nissan and integrated it into the company that it is, when it has received a high salary, the stock market does not. not react negatively to its payments, "said Miyajima, explaining that the market reaction may be a deciding factor overpaid.
Although his generous salaries are making waves in the country, they were still well below the levels seen in the United States, a fact that Ghosn often pointed out at annual shareholder meetings.
For example, Mary T. Barra, CEO of General Motors Co., has raised close to $ 22 million in 2017, including $ 13 million in stock-based incentives, according to the data. of AFL-CIO Executive Paywatch.
This kind of stock exchange was what Ghosn was asking for his own salary.
In Japan, 48% of CEO compensation comes from base salary, compared to 28% in France and 10% in the United States, according to a CEO compensation analysis conducted during the 2017 financial year by Willis Towers Watson, a firm specializing in executive compensation. .
Ghosn, however, was not the only one to advance the idea that high-level workers should have the potential to increase their incomes.
The Abe government has pushed Japanese companies to tie executive compensation to performance, thereby encouraging management to take risks as part of a broader corporate sector reform plan.
The Ministry of Economy, Trade and Industry released a report in September entitled "Executive Compensation to Encourage" Offensive Management "" comparing Japanese executive compensation to the compensation levels of other industrialized countries and describing also the means to offer higher wages than basic salaries.
"Currently, few companies in our country introduce performance-related pay for the medium and long term, and incentives to improve performance do not work well enough."
"We need to get out of low-risk, low-yield" earning capacity, "says the report.
Takuji Saito, professor specializing in management at Keio University, agreed that lack of performance-based pay was at least one factor leading to risk aversion of some Japanese companies.
"Even if Japanese leaders improve the company's performance, they will not be rewarded. But if they make matters worse, they could be fired, "said Saito.
"In these circumstances, management will aim to be safe while not taking risks."
An often quoted example of shyness among Japanese firms is the inordinate amount of cash held by non-financial corporations as of September, according to data from the Bank of Japan.
According to a study published in 2018 by the Policy Research Institute, the official research department of the Ministry of Finance, Japanese companies generated an average return on equity of about 8%, compared with 8% in the United States. .
Return on equity is a key measure of the profitability of the business sector.
But even in the United States, where more and more huge compensation programs are being accepted, the line where greed becomes prejudicial is the subject of intense debate.
An influential academic article published in 2016 revealed that, for companies listed on the US stock markets, "the measures of excess remuneration of general managers (CEO) are negatively related to the future performance of the company".
The paper, published by a team of researchers from the University of Utah, Purdue University and the University of Cambridge, also revealed that "overly confident CEOs who receive excess compensation companies undertake activities … which result in loss of wealth for shareholders ".
Psychological research, conducted in a laboratory and published in "The Review of Economic Studies" in 2009, also revealed that "with some important exceptions, very high reward levels" may have "a detrimental effect on performance".
The reality is that at least some extra effort for performance is likely to play a role in the motivation of the workers, but as research has shown, the precise details of wage distribution are probably an important factor. to determine if a high salary is a motivator. or prejudicial.
Zuhair Khan, an equity analyst at Jefferies in Tokyo, said his own analysis shows that in Japan the performance-related pay seems to be beneficial for a company's bottom line.
"Companies where all members of the board own shares valued at around $ 1 million are outperforming year after year," he said.
However, Khan added an essential warning: "What's important is that a person does not have a lot of stock, as was the case at Nissan."
Miyajima, from Waseda University, acknowledged that the Ghosn scandal could be used as a pretext for those who oppose the practice of rewarding employees for their performance, but he refuted the idea that there is no benefit to incentive compensation.
"In the case of Ghosn, he went beyond the legal channels to receive a higher salary," said Miyajima.
"In the usual case, the board of directors of the company could put an end to this behavior, but the most important problem is that they do not have the necessary system to put an end to their greed."
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