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03/26/2015

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Wow Jim --- you've really "stirred the pot" on this one! The Waxman report makes for good reading.

As for limits, companies in other countries have had limits for years. Japan is notable for really focusing on long-term company success rather than short-term in the U.S.

Perhaps the biggest mistake (a perfect example of "unforeseen consequences") was the well-intentioned rationale of tying executive comp to shareholder interests back in the '80s. Soon after, CEO incentive plans started rewarding short-term profit as a goal. If shareholders are satisfied the CEO must be doing a good job?

Today we see an obsessive focus on the short-term. In all fairness this is driven not only by shareholders but by market analysts. When short-term profits are good the price increases. Companies are even enhancing stock price by buying back stock --- to an extreme. That drives stock price as well. Everyone wants that, right?

Although it's after the fact, I really admire Bill Gates and others for using their "excess" comp after retiring on education and humanitarian efforts.

For additional reading:

http://www.compensationcafe.com/2011/04/deja-vu-all-over-again.html

http://www.compensationcafe.com/2011/07/who-impacts-stock-price-ceos-or-geeks.html

http://www.compensationcafe.com/2014/08/stock-buybacks-the-good-the-bad-and-the-ugly.html


Hope that this stimulates more open discussion by compensation people, Jacque.

As you note, none of this is new. It is the result of unique American economic forces that have been developing for decades. Like any other current financial situation that evolved over many years, it also will probably take a long time for consensus about the issue to form. Then remedies must be created and implemented.

When and how should it start?

This is a BIG one. My comments only touch on a small part.
For one, I have never liked notions of universal cookie-cutter solutions in matters of rewards, and believe that suggestions of fixed ratios of CEO pay to any statistic of employee pay are particularly trite, tenuous, and troublesome basis for generalization across sectors, size, station/location/geographies, etc. In fact, implementing CEO-Employee Pay Ratio would be stultifying, sustainability-challenged, and soon found to be ....(pardon my need for alliteration)... stupid.

The contexts of companies (including their situations, strategies, staged of development, size, status, stability, structures, staffing, skill-sets, socio-demographics, etc., etc.) are often so different that it makes little sense, to me, for many rewards solutions to company/HR/rewards issues to be mandated or formulaic, especially at the levels that drive overall company performance.

Definitions of ‘excessive pay’ vary by 'stakeholder', and many of us think there are indeed forms of excess, at least judging by stories coming out since the recent global financial meltdown. We do need regulations and governance, yes. But there is some limit beyond which drill-down mandates on executive pay design only risk creating unintended adverse effects on enterprise behaviors and outcomes. We could end up with Excessive Pay Regulation And Controls.

Rewards professionals are hired and paid by boards and management who often call the shots, and often seek advice on ways around sticky regulations and issues, especially those of interest to ‘nosy’ and/or 'noisy' stakeholders. Few boards and CEOs want to be bogged down with avoidable regulatory or stakeholder flak. Many rewards advisors push for well-intended progressive programs aligned with complex contexts of companies, even in the face of aggressive questioning by boards and bosses.
Graef Crystal demonstrated rare courage (some would call it something else) years ago as an executive rewards consultant in 'coming out' to decry excesses and/or misalignment between pay and performance, even amongst companies he advised. His highly publicized comments doubtlessly changed his relationship with former clients.
For many rewards practitioners the question is: Who's gonna bell the cat? For others it is a question of who's going to look the gift horse in the mouth, or spit in its face. For many who make a living from sensitive and/or confidential matters of rewards, the best practice is: silence is golden.
Thanks again for raising the issues.

EKT: totally agree with everything you said. Some of my embedded links also cover those details you properly cited, plus many of the past articles here have focused on your other relevant points. Search "ratio", "cookbook" and "kabuki" for a few samples.

Despite more regulation, the problems have only grown. If we don't fix our part of the issue, we will deserve the blame our profession has been earning.

1) Compensation is not a profession, and it will not be one until WorldatWork (i) controls who is permitted to become a compensation practitioner, (ii) has the power to remove practitioners who are (in the sole view of WaW) incompetent, unethical, or otherwise disfavored, and (iii) can have the state arrest, try, imprison (and use deadly force with impunity in the face of any resistance to the foregoing) anyone who practices "compensation" without a CCP.

2) As I have previously pointed out, most executive compensation is delivered via equity, the economic cost of which is born not by the organization, but by its current and prospective owners in the form of dilution.

Taking away base salary and annual bonus from a typical F500 executive will provide each employee of his/her organization with the pretax cost of a large pizza. Paying it to NEOs will result in its being taxed at the highest marginal rate, which returns far more to the treasury to be subsequently disbursed in the form of subventions to cronies, rent seekers, and other politically favored constituencies.

Wonder how many readers will realize that, in this economic context, Tony's "rent seekers" are not people looking to lease an apartment?

As Doctor Johnson said: "Sir, I have found you an argument.I am not obliged to find you an understanding".

People can't reach agreement without understanding. Public opinion continues to build consensus against Goliath and for David http://news.yahoo.com/us-wage-hikes-real-progress-workers-publicity-stunt-030351358.html. Arguments will fall on deaf ears when comprehension is lacking.

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