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05/01/2014

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Very interesting points and suggestion, Dan. Perhaps makes way too much sense to ever be adopted in a world where few parties seem willing to embrace solutions that compromise their self-interest in the service of something bigger.

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" --- Upton Sinclair

Agree with your suggestion. Something's got to break the logjam.

Dan - Interesting approach. The attention executive pay is receiving lately is driven by the increasing income disparity in this country, and a general lack of understanding about the subject. Trying to modulate executive pay levels won't fix either phenomena. As you point out, the vast majority of CEO's receive reasonable compensation. Are some high visibility executives paid excessively? Sure. Will adjusting their pay make any difference? Probably not. Unfortunately, executive pay has become the whipping post for extremely complex social and economic issues. We'd be better served by focusing on the real issues rather than beating up on a few highly paid business people.

One of my goals for 2014 is to open up the dialogue about new/different/better solutions to the major pay talking points, including:

Executive Compensation
Minimum Wage
Internal Pay Equity
Correct pay vs. what surveys might say
Strategic and cultural pay alignment

While this executive compensation suggestion is unlikely to be supported by companies or investors, it is an attempt to show a different perspective on a long-term complaint from all sides. It would be great to see more ideas at the edges (besides capping pay or doing nothing) to help define the potential "box" that houses all of our solutions.

What's in it for them? Without mutual advantage, there is no motivation to voluntarily change anything. If compelled by outside forces, there might be mutual agreement on the least onerous option. What makes sense to someone without any stake isn't necessarily welcome to those with vested interests. Outsiders are interfering in THEIR business.

Why not simply shift the proposed solutions into the parallel worlds of entertainment, media and sports? There, even the worst major league players are millionaires. Any rational solution imposed to "solve" excessive compensation should apply to movie stars, supermodels and media personalities, too. Makes no sense to flog CEOs who work for a living and wink at folks making much more for playtime activities. Right?

Insofar as executive pay is concerned, trying to address the issue through legislation is a futile and misguided exercise. Even if something were to get cranked out it would likely have no teeth and lots of unintended consequences. Besides, being a CEO is no cake walk; they shoulder a huge responsibility to deliver high quality products and services, many of which we cannot be without.

What executives get paid is up to the board and the shareholders. Sports figures get paid a lot because 1)they can,and 2)somebody thinks they are worth it. Plus, they add value in the form of entertaining millions of fans. The same is true for media stars. And, regardless of one's opinion of the obscene amount of money being paid to sports and media figures, these people have unique skills and are very good at what they do. They also work really hard.

On the subject of obscenity, consider the investment banker on Wall Street. Many of these folks earn income that makes sports and media comp look small by comparison. These people add no real value of any concrete nature, and are in the business of profiting off of other peoples money.

The point of all of this is that, like the old saying, 'beauty is in the eye of the beholder'. What's excessive to me might not seem excessive to you. Getting wrapped around the executive compensation axle is like being on a Merry Go Round; it's a nice ride but you end up pretty much where you started.

"My guess is that few investors would jump into this kind of arrangement. I would also guess that most executives would be unlikely to see this as useful."

- which then invites the question "cui bono"? Shareholders don't want it, executives don't want it, and the government wouldn't want it (lower executive pay = lower tax revenue). Any other opinions are, to be blunt, irrelevant.

Jim,

While I believe the amounts paid to sports and movie stars are comparable in value, they are not comparable in how they are conceived, designed, approved or even why the payments exist at all.

As for investors being outsiders, that is truly a key issue. Once you are willing to accept "financing" by selling some of your company to the public, you open the doors to having "partners" with different interests than your own. That should be expected, but is often misunderstood.

The concept of linking shareholder commitment to the power to control the company is all about turning outsiders into real partners.

John,

As you note, it is unlikely that any type of forced "modulation" of executive pay will work as planned (or at all.)

I agree that most executives, especially CEOs, don't walk away with anything too impressive when compared to the work they put in. We must also remember that the "star" CEOs are somewhat like star NFL running backs. They both take a lot of hits and have fairly short careers in the position. more on that here: (http://www.compensationcafe.com/2012/07/ceos-and-nfl-running-backs-swift-careers-for-those-taking-the-big-hits.html)

I hope this conversation continues.

Tony,

The great thing about the Compensation Cafe is that we can discuss ideas that are unlikely to happen with the goals of backing in to solutions that may actually be possible.

As Henry Ford once said (or so the internet like to tell me): "If I had asked people what they wanted they would have said a faster horse."

Sometimes the Comp Cafe is a bit like science fiction. We discuss best case or worst case scenarios. We discuss perfect solutions. We talk about how a company can create a solution in a perfect world. All of that is designed to spur thought and discussion with the intent that something better will emerge.

Your comment about the government, not withstanding their constant complaints, wouldn't want lower executive pay is interesting. I discussed that possibility in a prior article and would love to hear your thoughts: http://www.compensationcafe.com/2012/03/executive-compensation-the-political-taxation-conspiracy.html

Dan:

There's a famous Teddy Roosevelt quote (I'm too lazy to look it up) about the guy in the arena vs. the critic. On the one hand, that would seem to be quite appropriate here. (You = guy in the arena; Me = critic)

On the other, and in this particular case, I submit that you are offering a non-solution to a non-problem.

I've suggested to Ann that I will write a guest column on a related issue. We shall see if I can cash the checks my mouth writes.

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