Clearly, changes need to be made to executive compensation. I found an interesting article in the Harvard Business Review referring to the fact that it is not necessarily a question of how much ( which really is a question for individual boards to decide) but rather a question of how (the structure). I completely agree that the larger debate should be on the how not the how much.
As it relates to the how or the process, I have a few long held beliefs on this subject. It should be tied to long term value creation or destruction; we should recognize what the person inherited which could be good or bad; and we should remember that no one is as dumb as it seems when things go wrong nor as smart as they seem when things go right since they are operating in a larger market, which is why I have always favored some factoring, but not entirely, of how the company performed relative to its peers. So while I have been clear on this my struggle has been on the how. Particularly the long term value question.
I found this article in the Harvard Business Review linked to the original one that I found thought provoking. The article is entitled How to Tie Equity Pay to Long Term Performance.
I hope you find it thought provoking and if so, let us hear from you on your reaction and your ideas.
Let's start a dialogue!
Until Next Time,
Gail
Friday, June 26, 2009
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“It should be tied to long term value creation or destruction.” Thanks for that Gail. It is truly a breath of fresh air!
ReplyDeleteIf executive leaders can refrain from selling out the future of a going concern in order to maximize compensation contracts, then ‘executive leadership’ may once again return to actually leading enterprise longevity. And while we’re on the subject of altering time to maximize compensation, let’s not forget about the titanic executive heros who were involved with backdating their executive stock options a couple of years ago.
In the aftermath of the great Wall Street meltdown, it would be a tremendous loss if executive entitlement were not replaced by executive accountability. Long term sustainable value creation by C-level leaders has the potential to restore a profession, as well as a national economy.
Best regards,
SRD