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07/25/2019

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I don't think free agency is a bad thing, Dan.

I haven't heard a comp pros take on the recent Michael Lewis podcast, which was great. He frames comp consultants as referees. There are governing bodies with their compensation philosophies and goals on one side and there is compensation data/practice on the other. As referee/consultants we have a responsibility to make sure the comp decisions align with the philosophies.

Governing bodies = sports team owners
Executives = athletes
Consultants = referees

Keep the game clean--that's our job.

I'm not 100% on board with this, but it's an interesting way to think about it.


Not all rewards jingle.

The public, unions, politicians and MSM all count dollars to "keep score". They want "fairness", which means... well... MORE (for themselves, typically).

As long as comp people keep endorsing schemes which enrich the 1% in extremely transparent ways that show cash values (yeah, I know... potential, but still...), those who approve the deposits of THEIR money into already-bulging pockets will earn ire, resentment and hatred.

Competition is the culprit. Since the 1980s, the statistically significant positive correlation of industry/size-specific Exec Comp amounts published in the major commercial surveys has skyrocketed. The moment one firm edges ahead, "I want what HE got!" resounds. The ratchet effect rules. Since board directors tend to overlap, private CEOs get cash-equivalent packages matching the openly reported corporate CEOs.

Thus we experience an uncontrolled mad rush towards economic/political insanity.

Can't we get the enabling attorneys out of "our biz"? Why don't we actively promote some less conspicuous non-"countable" rewards that would satisfy Great Leaders without outraging the rest of the world?

Otherwise, some profession will pay a hard and bitter price... and we know which group will end up in the cross-hairs.

pretty well stated

Thanks for the comment Joe.
I also think free agency is generally a good thing. I will have to give the recent Michael Lewis thing a listen. I will guess that I will have an opinion. I often feel that Comp pros are less like referees and more like scorekeepers. The decisions seem pre-made with comp pros left to justify them.

Hey Dan

As always good thoughts.

As you rightly suggest equity has been the cause and because of the way we communicate its value has created an impression that this is cash money. Anyone who has ever reconciled realised value of LTI awards at settlement with booked value will know there is often a significant difference because of a number of factors.

This value chasing is fuelled by an industry of consultants who have bet the farm on data including inclusion of this funny money that perpetuates the annual review and fee cycle and stokes the fear of being "less than" .

Management do not invest Capital as investors do but we encourage an inflated degree of leverage (and return) return that is protected (through employment law and contract) - why did we never settle on "if you want the same return buy the stock too".

Pay equity, gender equity et al are suppressing pay at lower levels but no fairness tests are applied at senior levels other than market rate which may or may not bear any reference to lower levels of pay in the organization.

Why not give employees, like shareholders an opportunity to comment on the reasonableness of their leader's pay. Whether we like to admit (yet!) or not it does have a meaningful impact on engagement and collaboration. My guess is that establishing that linkage will have a beneficial effect on leadership, engagement and collaboration - it worked in the forces! We have tried everything else; taxes, shareholder approval (say on pay), disclosure and the CEO pay ratio - all failed.

If one extends the concept of Companies as communities then CEO's like elected officials have to have the approval of all stakeholders to get the job - so why not include employees. And why not have a term; say three to five years for a fixed fee plus bonuses with the CEO seeking re-election at the end.

We examined this in a blog a few years ago
https://thehumanwell.com/a-peek-into-the-future/

There would be a break clause and penalty for premature termination - giving the workforce reasonable comfort that their leader was not going to be poached away.

Shareholders will need to will these changes and maybe our friends at the proxy advisory groups should be taking on a higher calling :-)

A good and endless discussion - thnx for rekindling it.

Thanks for the comment Paul. Very interesting ideas (and very entertaining blog article). One thing I have always found surprising is that the majority of employees at the companies with the highest-paid executives believe that executive compensation at their company is just fine. I have seen survey results from multiple sources over the years. I do not think giving employees the ability to have a "say on pay" would do much more than create an additional administrative burden.

I thought your number 5 was true but funny. "The stock market has been redesigned to grow for longer periods and fall for shorter, albeit more dramatic, periods." Remember when there was all the talk of underwater stock values and what we needed to do to fix it? How we had to fix it? Execs want quick fixes now in their favor (everyone does).

I agree with you about the pitfalls of the current system, however, the genie is out of the bottle now. It will be tough to put it back without the crash you are predicting in 5 to 10 years.

Thanks for the comment Lisa. It's funny but sad. Equity works best when the markets are both rational and follow fundamentals. Repricings and option exchanges will come back with a vengeance when the market falls again ... and will once again allow for spring loading of equity for the wrong crowd.

Hey Dan very good. That's the point :-) Does leadership correlate with high pay - maybe that makes them worth it?

For those interested, the episode that references exec comp consulting is titled The Hand of Leonardo. But the entire series in on the same theme.

Michael Lewis does interview Pearl Lewis as part of the conversation.

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