What is necessary to change a person is to change his awareness of himself. – – Abraham Maslow
Dear fellow business owners
Executive Compensation is a hot topic these days and rightly so! There seems to be almost unanimous agreement that it got out of line in the “bubble” times, unless you are one of those that are able to somehow justify that earning $100 million bonuses is defendable? Those bubbly days are gone, but how do you “reset” these expectations of executives? How do you overcome the “anchoring bias” of people to recent levels? Charlie Rose had a very interesting interview with Paul Volcker here Sept 29, http://www.charlierose.com/view/interview/10631 , in which he makes some very sensible comments regarding executive compensation around the 45 min mark.
I am a firm believer of “everything is relative”. There is many evidence and studies done show people value and compare themselves relative to what their peers have or earn. Leaving aside the argument of whether this is the correct way of valuing one’s self worth, it seems to be the judgment in the business world at least. As a simple example, a top banking executive earning $10 million, but earning 10% more than his closest peer with $9 million, would be just as satisfied as if he was earning $100 million vs his peer’s $90 million. So instead of focusing on absolute values of compensation, i.e. $5 million or whatever, the focus should return to relative values and what appropriate compensation at certain levels of executive management are. I would want to see more intelligent debate in the media and public about what “appropriate” is and how to define and measure the definitions and/or requirements of these different levels. Compensation committees can then go and set relative packages around these levels combined with the correct structuring of long term goal achievement instead of rewarding short term speculative behavior with no real long term commitment from management with their own money. But the debate needs to be public, or it run the risk of staying a closed club of boards, executive CEO’s and compensation consultants in which “ you keep on raising me and I keep on raising you!” stays the motto.
But this is my own “utopia” thinking again. What do you think?