Written on April 25, 2010 by Charlie in Compensation
A recent HR Executive article, “Lowering the Bar on Performance”, caused a stir in my belly today (aggravated by the two donuts and large latte I had just consumed (my 4 year old’s penchant for sweets is going to be the death of me, I swear). I’m certain most of you HR pros out there have wrestled with the precarious and often conflicting position you play as an adviser on compensation plans and a strategic partner to the business leaders. I don’t know about you guys, but my recollection of my Pay-For-Performance lessons suggests very simply that when the business is doing well (and you contributed to it) you’re paid well and when the business is doing poorly (and you contributed to it) you’re paid poorly…relatively speaking, that is. Did you realize that despite this “Great Recession” we seem to still be climbing out of, CEO pay has remained relatively flat – “declining a mere 0.9%” (Wall Street Journal/Hay Group). Do the math on that one for a second: If your total compensation package is $1M, that means you made a measly $991,000 last year…you poor poor thing. I’m sorry, but a big fat WTF is in order here. The article suggests that much of this is because of a shifted focus on retaining executives and the related notion that too substantive a decrease in the exec comp package will alienate key leaders. This phenomenon is the quintessential evidence that most compensation committees and their board peers are a bunch of spineless, self-serving, [insert plural slang for ‘cat’ here]. Heeellllooo, you grey-haired pompous male cronies, wake the ‘f up! Even if the economy’s demise is behind your company’s sub-optimal performance, that doesn’t exempt your Execs from feeling the pain. In fact, in my mind that group should be the first to feel the pain. They should have anticipated this mess, they should have prepared for it well in advance, they should have taken measures to protect the really more important assets of the business…the broader employee base. Adjust their targets to account for this new environment? That’s a defeatist strategy. It’s like saying “it’s ok you didn’t do well ’cause it’s harder to do well right now.” What is this, a Montessori School? Now here’s what really gets me about all of this: HRE goes on to suggest HR’s role is to keep these conflicting agendas in balance. Ideal? Yes. Realistic? Hardly…
I know there are some organizations who really give their HR team (and related Compensation Experts) the first say in these matters. But at the end of the day, I think that’s window dressing. Do you really think the average HR professional – even one who is closely involved with the Compensation Committee – can suggest without some repercussion to their own personal standing that a CEO (and his/her execs) should stand to earn less in the coming year, especially when the Comp Committee is suggesting otherwise? I once challenged a comp committee chairman who was making the recommendation that the Chairman of the Board should receive a higher retainer. I can tell you without hesitation that I lost favor with both the Comp Committee and Board Chairman as a result. And guess what…the Directors don’t want to piss the CEO off because it’s largely because of him/her that they sit on the board in the first place. I don’t think there’s any question that the HR Leaders are playing a more visible role in these matters, but I think it will be a long time before that role truly impacts tough decisions. One way to solve this problem would be to appoint a Compensation Committee that is actually independent from the Board, from the Executives, and from the Shareholders. Or maybe comprise it of: one board director, one HR leader, one executive, one external compensation consultant, and one shareholder; anything that’s really different from the current model. Because until the compensation advisers are screened and selected for their ability to really hold the execs accountable and until they take an oath of fealty to the broader company’s welfare, it’s not fair to expect HR to drive meaningful results in this space.
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