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.
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I haven't read the whole article but just the 'important' excerpts you have given in the blog.
ReplyDeleteAll I can say is other than saying no bonuses (an impractical and stupid suggestion) is there any solution provided.
These excerpts clearly and squarely fall into my "this should happen, that should happen" category. It has less than 1% chance of happening.
Moreover the last sentence you quoted is the ultimate BS statement I have read. It not for nothing that academics is not considered 'real-life', because of such silly and lofty statements by academicians. The guy expects people to behave opposite of what they are programmed to do by nature. The last sentence here:
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.
I would suggest you read the article. It's pretty short.
ReplyDeleteI do agree that this suggestion has almost 0 chance of happening, but that doesn't mean it's not worth thinking about. That attitude of blatant dismissal is exactly what perpetuates the "0 chance of happening" issue.
The article focuses on faulting some of the underlying premises of our modern bonus structure.
For example, "A company’s health is represented by its financial measures alone—even better, by just the price of its stock." This is the basis for using stock as incentive to perform. He argues that stock price does not necessarily correlate with a company's performance. He goes on to say, "This flawed assumption, though, does far more damage than simply distorting CEO compensation. All too often, financial measures are a convenient substitute used by disconnected executives who don’t know what else to do—including how to manage more deeply." I think that in some cases (having worked in a large company, I've seen it at times), this is not so unfair a judgment.
Does he have any ideas about how to reward good performance by executives and employees Its not just CEO's who get bonuses. People earning as little as $50,000 get yearly bonuses. Is he proposing for all these bonuses to be eliminated. If so is there any incentive for me as an employee to perform better than average other than to get moral satisfaction of doing "societal good", which considering me being a sociopath is not going to happen unless I get rewarded in hard cash. And I am not speaking just for myself but for almost every human being (except those who are starry eyed idealist!)
ReplyDeleteYes. Salary raises. The better you perform, the larger the raise you get. Promotions or achievements can come with one-time cash bonuses. He is focused most on STOCK bonuses in executive pay packages, and how that style of bonus is misguided.
ReplyDeleteIf you perform just average, your raises will be minimal to none, and average also likely means no promotions or achievement rewards.