How should CEO's pay be determined?

BUSINESS TIMES

Question:

Mr Tan,

Sometimes, directors' fee/ management compensation stir up debates /draw criticisms from investing public. Some may hold the view that, CEO / senior management's compensation package should be calculated based on the success/ failure of the strategy implemented by the management . However, most of the time, company strategy has long term implications and thus it is hard to measure the success of such strategy in the short term.

In your view, how should a CEO's pay be determined? "

Journalist

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My reply:

The leader of any organisation, whether it is a business, social organisation or the government, should be prepared to place the interest of other people, including the customers and colleagues, above their personal interest. This gives them the moral authority to lead the organisation.

Any great organisation will take many years to build up. It is not a short term effort The success of the organisation is not the work of the leader alone. He or she needs the whole-hearted support of other people who share the same visision, including the colleagues, customers and external partners.

The leader should be adequately compensated, but it should not be done in a disportionate way. It is wrong to emphasise on short term rewards, based on stock options and shareholder value as determined by the stock market. This has led to many corporate scandals, including the use of accounting tricks to boost up short term profits.

I wish to see a return back to fundamental business ethics. Business leaders should make the effort to build a strong business that creates value to all stakehhlders over the long run. Everybody should be fairly and adequately rewarded.