29/10/2008
As the financial downturn spreads across the globe, multinational corporations should review executive-level compensation to determine if the wage levels are in sync with the larger corporate mission, an international economic think tank official told SHRM Online.

A voluntary review of executive-level compensation is a long-term strategy the international business sector should adopt to help keep the financial crisis from getting worse, says the Paris-based Organisation for Economic Cooperation and Development (OECD), an international think tank with the goal of promoting economic growth and employment and raising the standard of living among its 30 member nations.

The goal is to avoid “a widespread and protracted global economic downturn and restore the conditions for growth,” Angel Gurría, OECD secretary-general, said in a written statement. The OECD is preparing a list of recommendations that will focus on the structural implications of the financial crisis and suggest a more “holistic” approach to risk management, compensation and regulation, he said. The OECD recommendations will include urging companies to improve financial education and risk awareness as a way to restore the confidence of consumers of financial services, he said. The recommendations seek to stabilize and strengthen the financial system, which can be “a powerful counter-cyclical tool,” he added.

Corporate compensation is an important item identified by OECD, and multinational companies need to re-examine executive-level pay, Holly Richards, an OECD spokeswoman, told SHRM Online. The review should be linked to multinational corporations’ long-term “decision-making processes” concerning foreign operations, she said. “Short-termism [at foreign operations] has been a major problem,” she added.

In addition, companies can help resolve the current financial mess by taking a closer look at corporate risk management, Richards said. Corporate boards frequently are not aware of the risk issues and leave it to staffers who are not board members, she said.

“Risk management does not mean only looking at a value-at-risk report, based on historic volatility,” she said. Rather, boards need to understand the risk of foreign operations with regards to their firms’ long-term strategy and to determine whether the strategy has “appropriate leverage for worse-case scenarios,” she said. It is about accountability for all aspects of risk at the board level, she added.

The OECD recently released a report that says the gap between the rich and poor is growing and children and low-skilled workers are sliding deeper into poverty. The United States has the highest inequality and poverty in the OECD after Mexico and Turkey, the report said.

Frank Klimko is a freelance writer in the Washington, D.C., area who has extensive experience writing about federal regulatory agencies.