Finally, an Opinion article on CEO pay with which I can wholeheartedly agree.
Jay, where have you been all my life?
Published in this morning’s Agenda magazine, Jay Lorsch – Louis Kirstein Professor of Human Relations at HBS – has hit the nail right on the head. Not only that but he says a bunch of stuff that I’ve been saying for years but because it comes from an academic, maybe they’ll listen.
To summarize. Problems:
- most incentives don’t work because executives can’t see the link between what they are doing and what they get paid for doing
- there is no real employment market for executives so compensation surveys are a waste of paper
- creating short-term shareholder value growth is not the sole purpose of corporation
Solutions:
- decide what the strategic goals are and set these as targets and recognize that achieving them is a team effort not an individual one
- dump the compensation surveys and negotiate a rate that reflects the value of the executive to the company over time
- if golden hellos or parachutes are to be paid, these need to be contingent on achieving performance goals
- reward managers and employees according to stakeholder return, not just shareholder
Nice.
Paul Hodgson - Senior Research Associate
