"The problem isn’t that they are poorly designed. The problem is that they exist."

The title refers to executive bonuses. CD emailed me a great piece from MIT Sloan Management Review. The main purpose of the review is to show that executive compensation is poorly structured. What I really like is that it's one of the first "legitimate" publications (read: not a random angry blogger/talking head) to suggest entirely scrapping executive bonuses. That this school is one of the prominent producers of the very executives they are criticizing only furthers the articles' relevance. It is important to note that the article itself was written by Dr. Mintzberg of McGill University in Montreal, but it isn't being considered an op-ed.

One of the most compelling points is that even bonuses based on "performance measures" are a flawed idea:

How do you assess the long-term performance of a chief executive? Some proposals look at three years, others as many as 10 years. But can we even be sure of 10 years? Is a decade long enough in the life of a large company, with all its natural momentum? How many years of questionable management did it take to bring General Motors to its knees?

Conversely, if a company’s stock price goes up and stays up for several years, does that signify the definitive success of the current chief executive? What if the previous CEO made some good decisions that later kicked in? Don’t we all talk about the long-term influence of executive decisions? Have we forgotten about that?

He concludes with a pretty funny (though thoughtful) bit:

Actually, bonuses can serve one purpose. It has been claimed that if you don’t pay them, you don’t get the right person in the CEO chair. I believe that if you do pay bonuses, you get the wrong person in that chair. At the worst, you get a self-centered narcissist. At the best, you get someone who is willing to be singled out from everyone else by virtue of the compensation plan. Is this any way to build community within an enterprise, even to foster the very sense of enterprise that is so fundamental to economic strength?

Accordingly, executive bonuses provide the perfect tool to screen candidates for the CEO job. Anyone who insists on them should be dismissed out of hand, because he or she has demonstrated an absence of the leadership attitude required for a sustainable enterprise.

Of course, this might thin the roster of candidates. Good. Most need to be thinned, in order to be refilled with people who don’t allow their own needs to take precedence over those of the community they wish to lead.