By BLR Founder and CEO Bob Brady
What’s HR’s role with regard to executive compensation and the current economic crisis? BLR CEO and founder Bob Brady asks for your help with a brief poll.
WorldatWork, the organization for compensation professionals, recently issued a statement outlining its views about executive compensation for companies getting economic assistance under the federal bailout. WorldatWork is concerned that poorly thought out regulations restricting executive pay could backfire.
Don Lindner, a certified compensation professional with 35 years’ experience who is head of WorldatWork’s executive compensation practice area, agreed that Congress has to put some restrictions in place if it is giving aid but, he said, “There will be unintended consequences …. Putting limits on executive compensation could inhibit the ability of these companies to recruit and retain the executives needed to turn the company around.”
Lindner and WorldatWork support regulations that would require recipients of aid to “implement best practices in the areas of corporate governance and compensation committee process.” They stop well short, however, of urging Congress to create new regulations. Instead, they argue that current rules (SEC disclosure rules, Sarbanes-Oxley, etc.) are sufficient, if they are strictly enforced.
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Locking the Barn Door
I certainly agree that poorly thought out regulations (such as Sarbanes-Oxley) create huge problems. Although it’s inevitable that the companies receiving aid will be pressured about executive compensation, isn’t it locking the barn door after the horses are gone?
What about the corporate chieftains who ran Fannie Mae, Freddy Mac, Lehman, WaMu, and all of the other once-proud, now-bankrupt institutions? How could they and their boards think they were worth the tens of millions of dollars that many of them received as they left the smoldering ruins of their companies?
Frankly, some of these outsized compensation plans are hard enough to understand even when the companies are successful. As the owner/CEO of a small company, I certainly don’t understand why anyone should get tens of millions for running a company. Those CEOs don’t have their life investments at risk. In fact, they don’t have much at risk at all. If my company loses, I lose. Whether their companies won or lost, they won. I’m pretty conservative in my political and economic outlook, but what we’ve seen is not right.
The strategies that they conceived, implemented, and managed proved to be a hopeless flop. They don’t deserve their exit packages. Talk about a culture of entitlement!
Few Are Blameless
On the other hand, they alone are not to blame. Responsibility for the economic mess we’re in has to be shared by many, all the way up and down the investment chain. People who kept refinancing their houses as their equity increased can’t really complain if their mortgage now exceeds their equity. They got cash once.
First-time homebuyers who mortgaged themselves to the hilt are in a different situation. They may have been unwise, but they didn’t get any payoff for their attempt to participate in the American dream of home ownership. They are the real victims of lenders who “sold” them.
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I recently talked about this with a colleague who was a senior executive at a company when it experienced a high-profile collapse. He was not involved in any of the scandals, but had a ringside seat as they unfolded and saw long-standing colleagues lose millions and go to jail as a result. He recently said that it wasn’t a single person, single event, or even a single strategy that caused the disaster. It was a lot of people making many bad judgments.
That’s what we’ve got in the current economic mess. Banks, developers, Congress, regulators, and ordinary citizens have to share the responsibility. America is strong enough to survive this, but it is going to be a long, hard haul.
Executive Compensation
Back to the subject of executive compensation. What follows is a short poll about HR’s roll in all of this. (Sample question, “Do you think your CEO’s pay is fair, relative to the rank and file?”) Please click the link and participate. All responses will be held in the strictest confidence, and we will report on the results in coming weeks.
That’s my E-pinion. Please e-mail me yours at Rbrady@blr.com, and please participate in the poll by clicking the link below.
Poll
(If you can’t click the link, copy it and paste it into your Web browser.)
http://www.surveymonkey.com/s.aspx?sm=PfkJPni8Ewg32u7EFTMspQ_3d_3d