This has been topical recently, with a number of highprofile cases of executives being paid amounts which do not obviously align well with their company’s performance. Some investors have expressed discontent at these pay packages and some have even gone so far as to vote against them. Investors have had their “Say on Pay”. 50 And, as is often the case at this time of year, as the pollen count has picked up there has been talk of a “shareholder spring”. Ultimately, however, these investor votes are binding on neither management nor boards. They are a “Say on Pay”, but not a “Stay on Pay”. With very few exceptions, no differences were made to executive compensation packages as a result of investor action. And the cases of investors actively voting against pay packages have in any case been rather rare. The “shareholder spring” may be as ephemeral as that pollen. Yet high executive pay-outs potentially have implications, adverse ones, for value-creation by companies and thus longer-term returns to investors. Monies paid out to executives are monies not being re-invested in the company, reducing investment in physical and human capital. They also drive a wedge between management and their employees – a wedge that has widened to over 150 times median wages in the UK and over 300 times in the US. 51 That, in turn, erodes social capital. A company, like a country, whose physical and social capital is being eroded is one whose wealth-creation capacity is being impaired.
This is in line with the design principles described in the Five Presidents’ Report, which notably insists that a fiscal capacity should not entail permanent transfers in one direction. A fiscal capacity in this sense would also be distinct in nature from more allocative tools such as those provided for by the EU budget. To be able to reach this objective, and based on my introductory remarks, I believe we need to see significant further progress along the following three dimensions: First, a pooling of fiscal resources, whatever their nature and size might be, only works if solidarity goes hand in hand with shared responsibility. A move towards more fiscal risksharing in EMU would therefore require a commensurate shift towards increased joint decisionmaking within strong common institutions. In any case, access to a joint euro area fiscal capacity should be made conditional on compliance with the fiscal rules of the Stability and Growth Pact. Second, we should aim at containing the burden that falls on fiscal policies by strengthening market-based adjustment. As Ludwig Erhard famously said, we need “as much market as possible, as much state as needed”. This means structural reform at the national level. But it also means completing banking union and supplementing it with a comprehensive capital markets union at the European level. In addition, this calls again for completing the Single Market more broadly, including in the services sector. Third, it lies at the very heart of all insurance that risks are distributed equally ex ante.