By BLR Founder and CEO Bob Brady
Last week BLR CEO and founder Bob Brady asked you to take a brief survey on HR’s role in executive compensation and the current economic crisis. Your responses, as usual, were thought provoking.
Poll results
HR managers responding to last week’s poll were nearly unanimous in condemning C-level excesses. Eighty-two percent of them believe that CEO compensation, in general, is too high. This was true across the board, regardless of company size. On the other hand, they were a good deal kinder when assessing their own CEO. Only a third (34%) said that CEO comp at their organization is too high, relative to rank and file workers. In this question, however, there was some difference when looked at by organization size. Fifty-four percent of the HR managers in large organizations (over 1,000 employees) answered “yes” to the question. By contrast, at companies below 500 employees, the average was about 28%.
| Do you think CEO compensation, in general, is excessive, relative to the pay of rank and file workers? | Do you think your CEO’s compensation is excessive, relative to the pay of rank and file workers? |
| # ees | Total | Number | % | Number | % |
| Over 1000 | 85 | 72 | 85% | 46 | 54% |
| 500-1000 | 29 | 26 | 90% | 11 | 38% |
| 100-499 | 142 | 110 | 77% | 37 | 26% |
| 50-99 | 62 | 51 | 82% | 19 | 31% |
| Less than 50 | 92 | 77 | 84% | 26 | 28% |
| Total | 410 | 336 | 82% | 139 | 34% |
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Main Street vs. Wall Street
More managers at smaller employers say that their own CEO’s compensation is fair, leading us to wonder if this is an example of the “Main Street vs. Wall Street” conflict. Smaller employers, where the managers are usually also the owners, get higher grades than their corporate counterparts who are working for the benefit of distant and often anonymous shareholders.
We can’t be sure, but it is interesting to speculate about the reasons behind the results. One thing that it doesn’t indicate, though, is the role that HR has in setting CEO compensation. Very few HR people participate, regardless of organization size. Only about 16% do, and this does not vary significantly by size. On the other hand, 45% think they should have a say, and in this case, there is a difference. Sixty percent of the HR managers in organizations with 500 or more employees think they should have a role.
| Does your organization’s HR department have a meaningful role in setting CEO compensation? | Do you think your organization’s HR department should have a greater role in setting CEO compensation? |
| # ees | Total | Number | % | Number | % |
| Over 1000 | 85 | 15 | 18% | 52 | 61% |
| 500-1000 | 29 | 1 | 3% | 18 | 62% |
| 100-499 | 142 | 23 | 16% | 60 | 42% |
| 50-99 | 62 | 6 | 10% | 25 | 40% |
| Less than 50 | 92 | 19 | 21% | 31 | 34% |
| Total | 410 | 64 | 16% | 186 | 45% |
Not at BLR?
Not surprisingly, this topic and the poll aroused some interest among the staff here at BLR. Is CEO compensation too high at BLR? I, of course, don’t think so, and we joked that we would deny access to the poll to anyone coming from a BLR Internet address.(We didn’t.) I have no idea of staff perception, and have no plans for a poll. Some things are better left uninvestigated!
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Not My CEO
The survey question about what changes should be made to CEO compensation in general elicited some strong reactions and more than a little hostility. The overarching theme was accountability, in particular, tying CEO compensation to the organization’s performance. For example:
–“Executive pay should be linked to both long-term success and short-term success. Also, pay levels should not only go up for success, but also go down when the company is not successful. The golden parachute in contracts should go away.”–“A real tie [to] performance would be desirable. Maybe a low wage, and then a bonus based on performance. If numbers are doctored, prison.”
A very different tenor was heard in responses to the question about changes to CEO compensation at your own organization. Many of you see your leaders as hard working, generous, and underpaid: –“Our CEO and other partner members took a rather large pay cut in order to avoid laying off employees. In our case, we have talented employees and do not wish to lose them.”
–“We have an amazing CEO who is probably underpaid … but truly dedicated to our mission …”
Put Shareholders First
My own sentiment is aligned with the readers who responded to the poll. In recent years, corporate compensation at the highest levels has often been seriously out of line, and is indicative of self-dealing by boards and CEOs who are not putting shareholders’ interests first.
I do believe that organizations have a right, indeed a need, to make money, and that shareholders (often pension funds and 401(k) owners) have to be rewarded for the risks they take when investing and reinvesting their capital. Executives have to get fair pay for their time, effort, and expertise, and in many cases they are entitled to a lot of money. Millions of dollars of annual compensation makes sense when these executives create huge value for their shareholders. But shareholders are not bond holders. They’re entitled not just to a “fair return” of some percentage of profits. Shareholders—not managers—are entitled to all of the profits. It’s easy for a CEO to see himself or herself as the reason that profits exist. The best CEOs are a big part of the reason, but rank and file employees, corporate brands, and a capital base are the biggest part of what drives success.
Anyway, that’s my e-pinion. I’d love to hear yours. Rbrady@blr.com.
P.S. Thanks to all of you who participated in this poll. Actual results can be seen here.