Business Brains

Harvard Business Review hosts great debate on executive pay

Posting in Food

First, a few disclosures. I have never been a CEO. I'm sure you're not surprised. But I have been in a position where I was responsible from the P&...

First, a few disclosures. I have never been a CEO. I'm sure you're not surprised. But I have been in a position where I was responsible from the P&L of my division and for a whole bunch of human resources. The worst time of year was when I had to figure out how to divvy up some percentage of "extra" money into reasonable raises for the best performers and figure out how to tell the ones that were just average that they were just that. Frankly, you couldn't pay me enough to go back to that situation, and even though my bank account is slimmer than before. I am in a much healthier place.

Now that you know more about my personal life than you really need to, let me just say that those comments are my preface to this from-the-gut entry about the top of executive pay.

I get to hear a lot about this topic, frankly, because I live in a very blue-collar town that is highly suspicious of my ability to earn more by sitting around using my brain and fingers on a keyboard than they do by "doing." I'm not exactly thrilled with that inequity, but I'm going to ask for every penny I can. I just have a little bit more flexibility than they do in my guise as a freelancer.

Many people in my social circle have been totally eating up all the recent press about limiting the size of corporate paychecks and bonuses. They are appalled by the numbers they hear thrown around and can't believe that anyone should be paid more than the President of the United States. Frankly, I have trouble with that one, too, but that's not really the intention of this column.

My point, actually, is that I think that the best CEOs are worth their weight in gold. But defining what "best" means needs to be subjected to a much more objective set of metrics now than it did in the past.

Mind you, I am a reasonable person and I believe that compensation should be directly related to your ability to produce (good results, innovation, amazing people, whatever gauge you want to use). But I have just as much problem with the idea of imposing a blanket cap on executive pay as I do with the notion that teachers should all get the same salary. Hey, if a teacher motivates his or her students to perform better than someone else in another class, heck yes I think he or she should be paid more for that. Sometimes it seems to me that unions exist only for the benefit of the poorest performers.

But I'm not an expert on this topic, like a whole bunch of people who are debating the issue of executive compensation this week over at the Harvard Business Review.

I especially liked this article, "Why Sky-High CEO Pay if Bad Business," which was contributed by Whole Foods Market CEO and Chairman John Mackey. His thesis is that salary caps are good, but the ratio should be related to the value of the company and the competitive position of the related industry. So, you'd have a chance to earn more as the company grow and you take on more responsiblity and headaches. I also really like Mackey's comparisons of executive pay across country borders, which are indeed illuminating. Why is a U.S. executive worth more than someone in the United Kingdom or Russia or France? Indeed.

Regardless of where you stand on this issue, it's definitely time to overhaul compensation and pay structures and start rewarding for very different metrics in the past—including metrics that have to do with the company's sustainability over time. Not only is this good for your company, but it will be great for attracting employees who are more interested in contributing to long-term sustainability than simply earning a paycheck.

I know Intel, for example, is playing around with the notion of rewarding developments that make its products greener or that help its own operation become a better environmental citizen. I'd love to hear more examples like this, not just from the heights of the executive suites but ones that reach down into cubicles all over the company. Care to share?

Here's a link to the entire package of articles about this issue.

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Heather Clancy

Section Editor

Heather Clancy has written for United Press International, ZDNet, Entrepreneur, Fortune Small Business, the International Herald Tribune and the New York Times. She holds a degree from McGill University. She is based in New Jersey. Follow her on Twitter. Disclosure