Shareholder Spring
Evidence is piling up that out-of-control “Carpet Land”
compensation levels are not only unfair, they are counterproductive. It’s not news
that paying corporate leaders outrageous amounts of money concentrates their
focus on raising their paycheck instead of corporate health. We have known for
decades that all the excuses in support of the multimillion dollar deals are
just that, excuses.
Ten years ago (August 9, 2002) in a USA Today piece, management guru Jim Collins reported that in a
five-year study his organization had been unable to find any connection between
compensation levels and the success of the companies they studied. Collins
said, “If you have the right people, they
will do everything in their power to make the company great, no matter how
difficult the decisions and largely independent of their stock-option
packages.”
In the same article Collins noted that you don’t have to pay
the big bucks to keep talent on board. “Retention” is the favorite “excuse” of
Compensation Consultants brought in to advise the companies on what they have
to shell out to keep their Carpet
Land inhabitants in place.
Collins noted that more often than not, an insider promoted into the top spot
did a better job.
Today the evidence is piling up that skills from one job are
not transferable to another organization. A study by the John
L. Weinberg
Center for Corporate Governance at the
University of Delaware found that CEO skill sets do
not move easily to another company. This cuts the legs out from the retention rationale
and with it the Compensation Consultants’ favorite tool to feed the endless
how-high- can-you-go pay scale race, the sacred “Peer Group Benchmark.” The
consultants pick a group of companies that they feel are relevant and use their
compensation levels to set their clients’ compensation; a method that keeps CEO
paychecks on an ever upwards spiral. In a NY
Times interview the lead researcher on the UofD study, Charles M. Elson,
said, “It’s a false paradox, a peer group
is based on the theory of transferability of talent. But we found that CEO
skills are very firm-specific. CEO’s don’t move very often, but when they do,
they’re flops.”
Apparently shareholders are fed up as well. Shareholder voting
on compensation is growing increasingly negative in what’s being called “Shareholders’
Spring.” In Europe where executive compensation levels are considerably lower
than here in America,
the shareholders are outraged. New York Investor Relations Guru Gene Marbach
writes that, “the French government is
considering the imposition of pay limits on executives at companies in which it
owns a majority stake. Pay will be capped at 20 times that of the lowest paid
worker in the company.”
That’s reminiscent of a few decades ago when ratios in America were 40
times the pay of the folks at the bottom of the pay scale. Today it can run as
high as $1,000 to a CEO for every $1 paid the folks on the bottom. Ethically, morally,
or for that matter practically, there is no way to justify this kind of wage
disparity.
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