Why the Executive Compensation Debate is Fundamentally Flawed

I sat through a very interesting presentation on the problems with executive pay and the associated comp plans being used in today’s corporations.  As I listened to the presenters very eloquent arguments, it dawned on me we are having the wrong conversation.  The whole underlying hypothesis that frames the conversation is flawed.

His opening remark was that executive pay plans should be designed to align the interests of the CEO and other executives with those of the shareholders.  A premise that underlies all conversations on executive pay and one I certainly have agreed with, that is up till now.

I don’t know what made me all of sudden see the fallacy in that premise, but as the presenter said those words I realized that is the problem.

Here is how the reasoning goes.  We are interested in aligning the interests of the CEO with that of the Shareholders.  We believe that the best way to do that is to incentivize the CEO through his pay package.  This assumes another belief that the CEOs behavior is driven by his self serving interest in maximizing his pay.  Therefore with the properly designed pay plan and the CEO innate desire to maximize his pay, he will behave in ways that create long term shareholder value.

Here is the fallacy.  A CEO maximizing his pay can perform in a myriad of ways that are not in the shareholders value creating interests.  In fact the whole focus on pay as the key objective for a CEO to attain sends the very opposite message that we as board members want the CEO to have.

Let me explain a little further.  When I was an executive hiring managers and other employees I sought out people who would communicate a real interest, even a passion, for the job I needed to have performed.  It is an age old belief that if anyone came seeking a position based on how much they can earn, they were not the type of person we would hire.

Why, because we knew that salary followed performance and performance was driven as much by their interest and passion for the job as well as their skills and abilities.  And anyone who was in it just for the money was not in it for the long term and would leave as soon as a better offer came along.

Yet in the current discussion on CEO pay we take as a given that CEOs are in it for the money and we have to pay them to get them and keep them.  Yet these very same people would not take this position with their own organizations.  Or if they do is this the kind of culture or tone at the top you want for your company.

Let’s bring the conversation on executive pay back on track.  How do we recruit and retain CEOs who have a true passion for the Soulful Purpose of the organization they are being asked to lead.  How do we as board members ensure they are behaving in the best interest of the corporation and the realization of its fullest potential The Living Organization™ that is.  And then after all that is done, how can we ensure they are receiving the proper remuneration for their efforts.

For more discussion on this topic visit my other blog, www.quantumleadersblog.com

 

Norman Wolfe | President/CEO | Quantum Leaders, Inc

nwolfe@quantumleaders.com

www.quantumleadersblog.com

http://twitter.com/normanwolfe

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