Are They At the Money and the Best Choice?

More than a few have been baffled by his annual salary which, at HK$9.57 million in 2006, is 6.6 times that of the U.S. Federal Reserve chairman, at a modest US$186,600 (= HK$1.45 million).

Recently we’ve learned that over 1.33 million Hong Kong people are living at or below the poverty line. For an individual from such a household, his/her annual income would be HK$42,000 or less (i.e. HK$3,500 or less per month). Yam’s salary is at least 228 times this individual’s.

Joe Nocera of The New York Times recently wrote an article describing general social outcry against eye-popping pay packages awarded to CEOs and arguing that the key problem lies not in the award itself which should be determined by market, nor even in the social inequities it creates although it is undeniably socially corrosive and morale defeating, but rather in the fact that in many cases the market is rigged and in some cases undeserving CEOs who perform poorly are paid exorbitant sums.

“I think executive compensation is a socially corrosive issue, especially when the middle class is struggling. I think it creates morale problems when the C.E.O. makes so much more than even other top executives. But what offends me most is a somewhat different issue: that the market for executive compensation is so clearly rigged. Chief executives sit on one another's boards, so they have an incentive to take care of one another. Directors are predisposed to want to make the chief executive happy since, after all, he or she is the one who picked them for the board. Far too often, a chief executive's pay isn't a result of an arms-length negotiation, but a result of a kind of a corporate buddy system………

Baseball players also make outsize salaries, as do actors and rock stars. You could easily make the argument that their pay is also socially corrosive -- part of the growing gap between rich and poor -- and even unfair given how little teachers make by comparison. But even many of the same people who think C.E.O.'s are paid too much don't take the same position about these other highly paid professions.

Why not? The reason, I'm convinced, is that we feel confident that they are being paid what the market says they're worth. Their compensation has been set by a real market, not a rigged one. And markets, in the end, aren't moral or immoral. They just are. We accept their judgment.”

Thus, in the case of Yam’s reward package, or that of any CE or chairman of any other statutory body for that matter, one might ask two important pertinent questions: first, is the remuneration package at the going market rate AND tied to job performance? And second, which is the more important one, does a ‘corporate buddy system’ exist in the market of statutory body chiefs’ appointments (i.e. IS IT A RIGGED MARKET?)

Incidentally, a rumor has been going on that Raphael Hui Si-yan, former Chief Secretary, will likely get appointed as chairman of the proposed West Kowloon Authority soon to be set up. One wonders if the selection process and remunerating model of this post and the post of the CE, together with the posts soon to be vacated by Yam (CE of the HKMA) and Billy Lam Chung-lun (managing director of the Urban Renewal Authority), should be conducted in a more open, accountable and competitive manner.

After all, statutory bodies are spin-offs of the SAR administration and should be held answerable to Hong Kong taxpayers in the same way subsidiaries of a parent corporation are answerable to their shareholders. If taxpayers are satisfied that there is no rigged market in the appointment and remuneration of heads of statutory bodies, they can at least live with it even though they might not like it.