The Wall Street Journal had a great article this morning entitled “No More Executive Bonuses.” The author’s argument is that “the problem isn’t that they are poorly designed. The problem is that they exist.” Now I’m an “executive” in my company – you can read about what my bonus plan is by picking up a 10-K. I can assure you that said plan has not been terribly lucrative in the recent past. As the plan’s primary architect, I have to say it does a fairly good job of matching stakeholder value with annual rewards to executives. But I can also tell you that even as someone who stands to profit from this plan, I have always struggled a bit with one element in particular. What it doesn’t encompass is the tremendous amount of work executives – and all employees – put forth even when the business is in the tank (especially when it’s in the tank for reasons beyond the company’s control). In other words, company success does not always equate to level of effort, sacrifice, and contribution on the workforce’s part. This particular issue relates to some of the “faulty assumptions” highlighted in the article - fault with which I cannot argue. These faulty assumptions border on “criminal” when it really gets right down to it. And it demonstrates an age-old issue in Corporate America…we do things because it’s always been done that way.
Why not simplify the approach we take to paying our executives…and senior management…and managers? Why not focus more on total compensation through base pay. It may mean more variability to base pay from year to year, but no reason company performance and individual contributions can’t be incorporated into base pay planning. It means the Board of Directors and Management need to have the cojones to hold others accountable for their contributions (or lack thereof) – something they need to get better at any way. It means we’ll have to attract executives who aren’t necessarily in it for the selfish, ego-boosting reasons – a good thing for sure. But it also means there’s a bit more equal footing on pay-for-performance. It’s time that corporate America wake up to the fact that no one person – or exclusive group of persons – is solely responsible for an organization’s success. I’m not talking about socialism here – I’m just talking about realism. I’m also not saying executives shouldn’t be paid a lot of money – I’m just saying the moolah should come with sustained results measured by factors other than what can be derived from a set of financial statements.
The only problem – well, the biggest one – is that the executives themselves usually create these plans (with the help of the Board of Directors and Compensation Committees who are all cut from the same cloth.) What’s going to change that? It starts with the selfless initiation of the executives to “get over it.” They might as well because I’m convinced the time is rapidly approaching when the market realizes their lofty compensation expectations don’t have to be met in order to attract exceptionally gifted leaders. Then perhaps…just perhaps…HR/Recruiting can get back into the game by a) actually finding and hiring those people and b) designing a pay-for-performance comp plan which is easy to administer, understand, and doesn’t make you blush.