according to a study by Show me the money, the Chilean Executive payoffs are the highest in the region. The presented argument points to the high cost of living in Chile, which encourages companies to deliver important compensations to their managers.
The question is what responsibility is corporate governance in these decisions and what are the effects on the behaviour of managers?
It should not be forgotten that the idea of corporate governance is born with the need to safeguard the minority shareholders of the moral risk of the majority and managers. Meanwhile, the offsets are intended, not only ensure the permanence of the Manager within the company, but that also, align their efforts and interest with the Corporation.
Then, do offsets are adequately serving these corporate requirements or by compensation become a tool to guide the efforts of the Manager to performances of moral hazard?
This question is critical if there is awareness of the impact of the results and strategies implemented by corporations over consumers, and how this affects the common good and the functioning of the State, which influenced by powerful groups could do that market prices functions through legislation ad hoc, in replacement of the dynamics of supply and demand.
Returning to the answer given in El Mercurio, who published the study, it’s not too convincing, by the fact that the markets of the region are populated with asymmetries of information, information that does not reach all actors of the economy, which produces opportunities for extraordinary profits to corporate insiders. This fact could also be explaining the high compensation of managers in Chile and that, in addition, as indicated in the previous paragraph: an inadequate relationship between State and market. This is not new, already Adam Smth (1776) spoke of the performances of the guilds and the rulers or Kings. Up to Hayek (1944) relates it in relation to the creation of monopolies by decrees.
From another point of view, offsets are a product of a participation in the profits, but not all the utilities, rather, the value provided by a Manager in particular. If this compensation is properly calculated – from the point of view of the creation of value, and not on the «relationship of value »-, El Mercurio article would be indicating at least two important aspects: first, that the companies produce greater value in Chile than in the rest of the neighborhood; and second: that the managers in Chile are more efficient in the creation of value. Both come to the same conclusion of the preceding paragraph: an inadequate relationship between State and market, or else, managers are over valued and corporate governments know it.
Poured in this op-ed content is the sole responsibility of the author and do not necessarily reflect the editorial line nor the counter position.