Last week, Business Week posted a blog by Matthew Boyle focusing on how CEOs of tomorrow will be paid. In preparation for writing the blog, he questioned Don Delves, founder of The Delves Group, a Chicago consulting group that specializes in executive compensation. Mr. Delves began the interview by setting the stage in describing the future environmental landscape for CEO compensation:
- A less volatile stock market, and not a "raging bull" market
- Very high inflation and interest rates
- The gradual replacement of boomers with the next generation
- Greater focus on risk related to rewards
- More talented, influential entitled boards
- Continued rapid ascendancy of China, India, Russia and other countries
My additions to his list:
- Greater governmental oversight and control of executive pay in private sector
- Continued emphasis on transparency
- Shift to achievement of long-term versus short-term goals
Mr. Delves believes that the next generation of CEOs will have different values and motivations from us boomers. They'll be more egalitarian, flexible, tech-savvy, cooperative and comfortable with change. Their focus will be on on paying for innovation, entrepreneurship and people development.
But with Boards of Directors still flush with boomer members, conflict regarding how to reward and pay executives will initially emerge due to the difference in values between the generations, then diminish over time as boomers retire from these boards. Boomers are more analytical, and believe in paying for achievement of results and innovation based upon measurable benchmarks.
The future bodes fewer stock options, and instead more restricted and performance-based shares according to Mr. Delves. He believes that CEOs will be evaluated more on sustainability, return on capital and balance sheet soundness than on growth and profitability. And he envisions potentially higher pay levels for expat CEOs working in emerging countries than what will be paid within the continental United States.
The impact of inflation on pay over the next few years will mirror the 80's in this country. For those of us who lived through it, who can forget the 12-15% merit increases associated with that decade? While stock option awards may diminish, base pay, deferred compensation, and long-term rewards will emerge into the forefront of executive pay.
Sound future executive pay design will need to incorporate more factors than ever before to succeed. They include transparency, inflationary pressures, a long-term performance focus, fiduciary responsibility, ethics, social responsibility, and governmental oversight.
Sounds like a fun challenge for us as compensation professionals!
Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients. Becky is passionate about designing HR programs and compensation plans that build organizations.
Most fascinating study of Executive Pay and the implications for culture shock waves between the Boomer Board of Directors and the Younger CEOs.
I have seen numerous studies on how the generations differ. I am curious what factors could help us to relate better with one another?
There are always valuable lessons to be learned from both sides of the generation gap.
What can we do to facilitate a transference of knowledge, wisdom, experience, and insight from the Boomers to the Younger Generations?
Likewise, what can we do to encourage the infusion of fresh innovation, egalitarian perspectives, and entrepreneurial energy from the Younger Generations to the Boomers.
Seems to me that biding our time until retirement and a passing of the guard is a terrible waste to both sides of the generation gap.
Posted by: Vita Taylor | 04/29/2009 at 09:54 PM