Performance-related pay?
This is a big change from last year, when the world fretted about deflation. Wages actually fell in 2003 and the uptick this year has been small. But one professional group has not felt the negative impact of an economic slowdown and, according to employment consultants, is likely to see their salaries rise yet faster as the recovery gathers speed. The group in question consists of managers of large public companies.
Executive remuneration jumped 3.4 percent last year, according to the financial statements of companies listed on the Warsaw Stock Exchange (WSE), even though total payroll expenses actually fell. And managers at privately held firms likely saw their compensations rise at an even more rapid pace. Paweł Sierociński, a payroll analyst at Deloitte, a global auditing and consulting giant, estimates that executive pay rose by some 15 percent over the years 2002-2003, when economic growth was sluggish.
Public outrage at the compensation package of Richard Grasso, CEO of the New York Stock Exchange (NYSE), kicked off a debate about the huge sums of money that American executives have been pulling in. And this is hardly surprising in the wake of a spate of corporate governance scandals that has shaken the business world in the USA over the last couple of years, says Krzysztof Lis, president of the Polish Institute of Directors (PID). He adds that the issue of executive pay has historically acted as a trigger for debates on corporate governance. But in this country it has fallen on deaf ears as the issue fails to attract media attention.
Jarosław Dominiak, president of the Association of Individual Investors (SII) and a long-time crusader for the rights of small-guy investors, vows to change this. While not opposed to good managers receiving fat paychecks in reward of their efforts to boost shareholder value, he is bent on changing the practice whereby executives enjoy pay raises even as the companies they steer hit the rocks.
"Poland has become an oasis for this kind of manager," he says. "We want to change that. Remuneration has got to be a reflection of executives' performance." In his view, the country is unique in Europe in offering fat cats an asylum from shareholder activists who monitor executive pay in other European countries.
And he is livid about some firms that fail to disclose details of their board members' pay, despite stock market rules that make this an obligation for all listed companies. Take the example of Trans Universal Poland, a logistics firm that, instead of disclosing managers' pay, said that the item "does not apply." The Business Journal was unable to elicit comments from managers who apparently treat their jobs as a hobby.
Another company, Beef-San, reportedly complained when the daily Rzeczpospolita published the relevant information for 2002. The newspaper claims that the meat producer's representatives cited "damage to the social fabric" such publications cause as the reason for its refusal to disclose the data this year.
But not all executives are quite so bashful about their wages. Bankers in particular reaped rich rewards last year, as average remuneration of executives and directors at the publicly traded financial institutions rose by as much as 19 percent. Thus the best paid group of executives continues to enjoy the biggest windfalls.
Executive pay increases were dramatic in some cases, such as that of Citibank Handlowy, where the rise amounted to 169 percent. While the figure may seem staggering, most of this increase can be explained away by the fact that last year the bank parted with three of its top executives, including CEO Cezary Stypułkowski, who left to take the helm of PZU, the country's largest insurer. Stypułkowski, considered one of the most talented and highly regarded managers in the country, received a large lump sum in severance pay, thus superficially boosting the bank's executive pay expenses.
Traditionally, bankers have enjoyed the highest salaries, which met with criticism after the latest figures were released from some investors who pointed to the less than impressive performance of bank stocks on the WSE. Even as executive remuneration soared, banks' profits slumped 84 percent last year, these people point out. Even excluding those banks that actually suffered losses (and executive pay raises were lower at those institutions), banks saw their profits reduced by 15 percent. Yet managers still received large bonuses.
In reply, executives say that their pay remains at, on average, just half of the level enjoyed by their counterparts in Western European countries. Indeed, the wage gap between this country and the EU average is more than twice as wide across the board.
Bank Millennium has been the most generous to its top dogs, as the twelve executives and non-executive directors made zł.32.7 million between them, representing a 13 percent rise on 2002. The sum also represents the highest proportion of total payroll expenditure among all listed firms, since the dozen big wigs at Millennium pull in 13.5 percent of all payroll spending. Most of the pay came in the form of bonuses, as the bank made zł.179 million net in 2003. Some analysts, however, say that the results were boosted by what they described as "accounting gimmicks."
Banks, and other companies, point out that the country still finds it hard to attract top talent to run its leading companies. Poland remains an unattractive destination for foreign executives in terms of both pay and prestige, say companies. And the booming economy means that the country could soon face staff shortages at the top level. At the same time, executive recruitment experts say that companies have shifted their priorities in terms of the sort of managers they seek to employ.
"Those who lost their jobs at the time of the economic slowdown... could face an uphill struggle to find new employment," says Andrzej Woźniakowski, head of the personnel consulting division at Deloitte. He says that companies have become very aggressive in their recruitment strategies and are looking for younger executives who could take the advantage of the opportunities presented by dynamic growth of the economy. It almost feels like we are back to the dotcom bubble days when aggression and youth were rewarded.
On the other hand, a recent report by Sedlak & Sedlak, a recruitment firm, that focused on slightly lower level managers, found that the supply of candidates with sound backgrounds in finance could soon start running out. In fact, chief financial officers (CFOs) can count on an average salary of around zł.20,000, or significantly more than heads of other departments, and their wages have been rising at a quicker pace than is the case with other managers.
The report also found that, despite all the changes on the market since the 1990s, some things simply don't change. Managers at foreign-owned companies are still making as much as one-third over and above the amount of average wages in firms owned by domestic investors.
Interestingly, despite the so-called 'chimney law,' which capped earnings of executives at state-owned firms, a look at the financial reports of listed companies for 2003 reveals that, among Polish firms, it is those controlled by the State Treasury that tend to be the most generous to their bosses. The one spectacular exception was KGHM, a copper and silver mining giant, which actually cut its spending on executive pay from zł.5.2 million to zł.3.6 million in 2002. Part of the reason for this was that the company ceased to make non-compete payments to former executives, which accounted for as much as 40 percent of all salaries for executives and non-executive directors in 2002. The company came under fire for the practice and abandoned it last year.
Paweł Dziechciarz, an expert at HRK Partners, says, however, that the scope for further spectacular rises at large companies is limited in comparison to the situation at smaller and, in particular, medium-sized enterprises. And he expects technology and financial firms to be particularly profligate in their attempts to woo top talent.
Managers, and top executives in particular, have had it fairly easy recently and they are likely to benefit from the economic recovery more than lower-level employees. But could this country simply be waiting for its own Richard Grasso to happen?
Executive remuneration jumped 3.4 percent last year, according to the financial statements of companies listed on the Warsaw Stock Exchange (WSE), even though total payroll expenses actually fell. And managers at privately held firms likely saw their compensations rise at an even more rapid pace. Paweł Sierociński, a payroll analyst at Deloitte, a global auditing and consulting giant, estimates that executive pay rose by some 15 percent over the years 2002-2003, when economic growth was sluggish.
Public outrage at the compensation package of Richard Grasso, CEO of the New York Stock Exchange (NYSE), kicked off a debate about the huge sums of money that American executives have been pulling in. And this is hardly surprising in the wake of a spate of corporate governance scandals that has shaken the business world in the USA over the last couple of years, says Krzysztof Lis, president of the Polish Institute of Directors (PID). He adds that the issue of executive pay has historically acted as a trigger for debates on corporate governance. But in this country it has fallen on deaf ears as the issue fails to attract media attention.
Jarosław Dominiak, president of the Association of Individual Investors (SII) and a long-time crusader for the rights of small-guy investors, vows to change this. While not opposed to good managers receiving fat paychecks in reward of their efforts to boost shareholder value, he is bent on changing the practice whereby executives enjoy pay raises even as the companies they steer hit the rocks.
"Poland has become an oasis for this kind of manager," he says. "We want to change that. Remuneration has got to be a reflection of executives' performance." In his view, the country is unique in Europe in offering fat cats an asylum from shareholder activists who monitor executive pay in other European countries.
And he is livid about some firms that fail to disclose details of their board members' pay, despite stock market rules that make this an obligation for all listed companies. Take the example of Trans Universal Poland, a logistics firm that, instead of disclosing managers' pay, said that the item "does not apply." The Business Journal was unable to elicit comments from managers who apparently treat their jobs as a hobby.
Another company, Beef-San, reportedly complained when the daily Rzeczpospolita published the relevant information for 2002. The newspaper claims that the meat producer's representatives cited "damage to the social fabric" such publications cause as the reason for its refusal to disclose the data this year.
But not all executives are quite so bashful about their wages. Bankers in particular reaped rich rewards last year, as average remuneration of executives and directors at the publicly traded financial institutions rose by as much as 19 percent. Thus the best paid group of executives continues to enjoy the biggest windfalls.
Executive pay increases were dramatic in some cases, such as that of Citibank Handlowy, where the rise amounted to 169 percent. While the figure may seem staggering, most of this increase can be explained away by the fact that last year the bank parted with three of its top executives, including CEO Cezary Stypułkowski, who left to take the helm of PZU, the country's largest insurer. Stypułkowski, considered one of the most talented and highly regarded managers in the country, received a large lump sum in severance pay, thus superficially boosting the bank's executive pay expenses.
Traditionally, bankers have enjoyed the highest salaries, which met with criticism after the latest figures were released from some investors who pointed to the less than impressive performance of bank stocks on the WSE. Even as executive remuneration soared, banks' profits slumped 84 percent last year, these people point out. Even excluding those banks that actually suffered losses (and executive pay raises were lower at those institutions), banks saw their profits reduced by 15 percent. Yet managers still received large bonuses.
In reply, executives say that their pay remains at, on average, just half of the level enjoyed by their counterparts in Western European countries. Indeed, the wage gap between this country and the EU average is more than twice as wide across the board.
Bank Millennium has been the most generous to its top dogs, as the twelve executives and non-executive directors made zł.32.7 million between them, representing a 13 percent rise on 2002. The sum also represents the highest proportion of total payroll expenditure among all listed firms, since the dozen big wigs at Millennium pull in 13.5 percent of all payroll spending. Most of the pay came in the form of bonuses, as the bank made zł.179 million net in 2003. Some analysts, however, say that the results were boosted by what they described as "accounting gimmicks."
Banks, and other companies, point out that the country still finds it hard to attract top talent to run its leading companies. Poland remains an unattractive destination for foreign executives in terms of both pay and prestige, say companies. And the booming economy means that the country could soon face staff shortages at the top level. At the same time, executive recruitment experts say that companies have shifted their priorities in terms of the sort of managers they seek to employ.
"Those who lost their jobs at the time of the economic slowdown... could face an uphill struggle to find new employment," says Andrzej Woźniakowski, head of the personnel consulting division at Deloitte. He says that companies have become very aggressive in their recruitment strategies and are looking for younger executives who could take the advantage of the opportunities presented by dynamic growth of the economy. It almost feels like we are back to the dotcom bubble days when aggression and youth were rewarded.
On the other hand, a recent report by Sedlak & Sedlak, a recruitment firm, that focused on slightly lower level managers, found that the supply of candidates with sound backgrounds in finance could soon start running out. In fact, chief financial officers (CFOs) can count on an average salary of around zł.20,000, or significantly more than heads of other departments, and their wages have been rising at a quicker pace than is the case with other managers.
The report also found that, despite all the changes on the market since the 1990s, some things simply don't change. Managers at foreign-owned companies are still making as much as one-third over and above the amount of average wages in firms owned by domestic investors.
Interestingly, despite the so-called 'chimney law,' which capped earnings of executives at state-owned firms, a look at the financial reports of listed companies for 2003 reveals that, among Polish firms, it is those controlled by the State Treasury that tend to be the most generous to their bosses. The one spectacular exception was KGHM, a copper and silver mining giant, which actually cut its spending on executive pay from zł.5.2 million to zł.3.6 million in 2002. Part of the reason for this was that the company ceased to make non-compete payments to former executives, which accounted for as much as 40 percent of all salaries for executives and non-executive directors in 2002. The company came under fire for the practice and abandoned it last year.
Paweł Dziechciarz, an expert at HRK Partners, says, however, that the scope for further spectacular rises at large companies is limited in comparison to the situation at smaller and, in particular, medium-sized enterprises. And he expects technology and financial firms to be particularly profligate in their attempts to woo top talent.
Managers, and top executives in particular, have had it fairly easy recently and they are likely to benefit from the economic recovery more than lower-level employees. But could this country simply be waiting for its own Richard Grasso to happen?
