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Time to put a ceiling on directors’ pay

Jan 19,2014 - Last updated at Jan 19,2014

There is nowadays a worldwide trend favouring the imposition of a ceiling on the cash and other benefits companies’ executives and chairmen of the boards draw.

It is believed that those at the top of banks and major companies exceed all reasonable limits by granting themselves extraordinary salaries and benefits.

If it is customary to have legal minimum wages, why not a maximum ceiling for those in charge, who are so generous to themselves?

In Germany, for example, the pay received by the directors and executives of major companies amounts, in some cases, to 200 times the salary of an average labourer in the same company, which is obviously unfair.

It is true that a director general in a company provides a service that differs from the service provided by a simple labourer, but the difference has reached unethical proportions. In the US, that led to the Occupy Wall Street movement.

The norm prevailing worldwide, especially in industrialised countries, is that the salary of the top manager should not exceed 12 to 18 times the salary of a simple labourer in the same company.

Such rule of thumb would motivate managers to improve the pay of the company’s laboureres and employees.

Moreover, it would help the company by reducing the administrative cost without lessening its efficient running.

It is not true that such ceiling would deprive companies of excellent managers. Companies used to attract the best mangers even when their offered pay did not exceed 12 times the average pay of a regular employee.

Admittedly, a good decision taken by the general manager may make or break the company, causing huge amounts of profits or losses, but it is the duty of a good manager to act professionally.

The gains resulting from a good decision should not necessarily be reflected on the manager’s pay, taking into account that a manager’s pay will not drop if and when the company’s profits decline due to wrong management.

In Jordan, one can find some cases that fall beyond logic and are by no means justified, especially in banks and major companies.

It was reported that some managers and directors are drawing (actually giving themselves) salaries that exceed 20 to 50 times the salary of a regular employee in the same bank on company.

No one is calling for equality of pay between mangers and messengers, but there must be some limit that should not be crossed.

Extreme cases do not serve a useful purpose, they can be explained only by greed. They border corruption.

If managers and directors are not ready to be reasonable in this regard, a positive intervention may become necessary.

Income tax rates, for instance, may reach 30 per cent for amounts exceeding JD5,000 a month, 40 per cent for amounts exceeding JD10,000 and 50 per cent for amounts exceeding JD15,000 a month.

Beside the astronomical salaries of some mangers, one cannot ignore the so-called bonuses, payable at the end of the year, unheard of in Jordan several years ago.

The value of some bonuses may in some cases exceed the monthly salaries paid over a full year. This kind of extra income should be dealt with in a special article in the new Income Tax Law.

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