I don’t argue that there has not been excess, and I don’t blame those who held their nose and allowed the government to intervene, and now call out for the pillars of activist corporate governance to be implemented.
But our culture demands – and our approach assures – that solving the executive pay dilemma is not likely to be easy, simple, or resolved in the short run. And there will be much gnashing of teeth and claw in the boardroom over executives who feel the rules may not apply to them – justifiably in some cases – versus board directors who will want to avoid any indication of weakness in enforcing a cultural fiat from on high.
And some company CEOs will have sterling performances and say they deserve more while others will be less outstanding but say they have to work harder or hire smarter folks at a higher price.
We are what we read. And each day we read about excessive executive pay so directors will do what they have to avoid appearing in the lime light. What we need to be reading about now is a new measure of performance and a highly risk-adjusted means of rewarding successful long-term performance. For starters then, make pay very performance oriented over the three year measure of shareholder return and make it a formula that is intact throughout all seasons. Then make bonus pay a fraction or a multiple of that depending upon whether the industry is fairly static or volatile in terms of returns, as well as your management team’s and shareholder’s appetite for risk. Lower risk appetite, higher base pay and lower bonus pay. And the reverse with high risk environments – lower base pay but a multiple of base at bonus time in the good years. Then add long-term performance which means truly long term – until retirement or several years after the departure. Get rid of contracts and single change-in-control triggers. Eliminate all the toxic stuff, no spousal plane rides for free. Then add it up in the CD&A for all to see. Make it measurable not just against your peer group but the S&P and other benchmarks.
You will make news, not nonsense. And we’ll all get back to business, not as usual.