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Fiscal cliff, growth in EU, executive pay – welcome to 2013

Guy Strafford
Jan 18, 2013 11:30:00 AM

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Guy-New

Happy New Year! We at Proxima hope that 2013 has begun productively and happily. There has certainly been no time to ease into the year gently - 2013 definitely has picked up seamlessly from where 2012 left off which, in our eyes, means continued opportunities and increased potential for enhancing value for our clients.

This post was taken from our latest e-newsletter, click here to read the full issue and to subscribe to upcoming e-newsletters.

Many challenges persist, however. Not least on the UK high street with Jessops and now HMV calling in the administrators. These difficulties serve as timely reminders that, irrespective of various pointers towards stability, we are in no way out of the woods and there has to be concerted effort from Government and industry to ensure that we do not retreat back into negative territory.

Before Christmas, we pointed to the fiscal cliff looming large, as the United States battled internally to find a way forward amid the pre-programmed tax increases and spending cuts. The eleventh hour consensus, of sorts, alleviated some of the immediate concerns, but while the latest battle may have concluded, the war continues with the acrimony between Democrats and Republicans only heightening. Another round of debt ceiling drama once again threatens America’'s economy, global financial standing and, ultimately, the confidence of US consumers. With Republications demanding dramatic spending cuts in exchange for another ceiling lift and Obama seemingly unwilling to negotiate, we hold our collective breath in the hopes that reason, common sense and compromise can ultimately overcome dysfunction.

The Eurozone continues to be a concern though the view in the UK is being rather overcrowded by the debate about the nature of the country'’s relationship with the EU. It is an important debate, but one that should be placed in the context of the wider situation in Europe, not forgetting that many businesses, ours included, have successfully expanded into the continent and opportunities exist for those able to manage pan-European engagements effectively.

As we move into annual remuneration rounds again, we have noticed a recurrence of the arguments against executive pay awards. Last year’s research gave us much to think about in this regard, as it revealed the extent to which third-party costs impact a company'’s financial performance when compared to personnel costs. Third-party costs account for 68% of revenue, on average, whereas personnel costs represent only 12%. With those figures put in context, we suggest that the argument is heading in the wrong direction.

Is the debate really about executive pay? Or should it be broadened out to focus on corporate waste?

As our research showed, a one-percent reduction in third-party costs could unlock up to 17% in wasted profits each year. So, is a CEO'’s compensation package really the best determiner of a company'’s ethos, performance or shareholder value? Or is there a greater prize for investors to go after? We'’re preparing some more thoughts on this and we'’ll be sharing them with you in due course.

We look forward to working with you again in 2013 and we wish you well for what is sure to be another engaging, challenging and stimulating year.

Guy Strafford

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