Harvard Business Review: Stop paying executives for performance


#1

[Read the post]


#2

Unfortunately, like all evidence that contradicts the vested interests of those with power, expect this to have very little impact.


#3

It doesn’t work for seven-year-olds, so it makes sense it doesn’t work on CEOs either. http://www.theatlantic.com/health/archive/2016/02/perils-of-sticker-charts/470160/


#4

I dunno…the article supports the status quo, but suggests a way to improve it. It’s very non-revolutionary. Instead of paying the C-suite wildly vacillating pay scales that truck mostly with stock price, you don’t play the lottery with their money and you’ll get better performance (which will increase the stock price and make your investors happy).

The vested interests are mostly interested in that last bit.

Of course, there’s a lot of cultural nepotism and insane 1% financial logic in most boardrooms and C-suite employees, but that only gets you so far when the stock price dips.


#5

Haha! Harvard Business Review says to change the outrageous way executives are paid. Executives laugh and laugh and light more cigars with hundred dollar bills.


#6

To me this was the most disturbing anecdote in the article:

I have absolutely nothing other than gut feeling to back this up but I think most executives are too interested in their long-term employment to pull this kind of stunt on a regular basis but this is a pretty damning argument against golden parachutes.


#7

_#4 (cooking the books or causing long-term damage to make a number) is the most important problem. I am familiar with several cases where execs “ate the seed corn”, causing severe long-term damage to the company, to obtain a one-time only profit increase and a huge bonus. Of course, the responsible parties leave (often taking a golden parachute) and leave the problems for the successor._


#8

Haha! See ya.


#9

I wonder if anyone actually believes that an executive who makes $100 million a year will really produce results 100 times better than an executive who makes $1 million a year.


#10

A similar practice is rife in oil production. By front loading production cost estimates when wells are fresh and cheap to run, the targets are easily met, leading to bonuses. The long - term cost estimates for the well as it ages are higher, of course as wells get more expensive to run, but the estimates actually become increasingly optimistic compared to reality (based on undefined efficiency and technological improvements) as costs are forecast further into the future. The nice thing about this is it makes the recoverable reserves for any given well look bigger and the reserve replacement ratio targets are also easily met. By the time the chickens come home to roost, the execs are long gone.


#11

Sir! The Board takes umbrage at your suggestion that their friend and close comrade who serves on many of their boards is not worth the money that they have voted to pay him!


#12

This is exactly why you should NEVER hire an executive who can’t complete XCOM 2 or Enemy Unknown, on the hardest difficulty, to demonstrate their strategic planning and long-term ability to manage competing resource demands.

Okay, maybe a VP can do the combat missions for them.


#13

I’ma leave this here:


‘He estimated that half the workers who operate and repair Montana’s 2,000 stripper wells have already lost their jobs. He has cut his staff to eight from 25 and cut salaries to everyone left by more than 20 percent, including himself. “It’s just a blood bath.”’


#14

Not long before firing me, my boss explained to my assembled team that there would be no bonuses for the year bonus was reward for results, not effort, and as we were in challenging market conditions, results were poor. So basically admitting that bonus achievement was largely outside our control. Not sorry to have been let go from that deal.


#15

The tax code is at fault here. Planet Money explains. TL;DR: Companies can deduct against income a maximum of $1 million in base CEO salary. But compensation tied to performance can be deducted in full. Therefore, if you want to pay your CEO more than $1 million, you have to put most of it in performance-tied compensation.


#16

Notice how American companies never seem to outsource executive positions to countries that have cheap labor? I’m sure that India has a number of highly qualified MBAs who would happily run America’s Fortune 500 companies for salaries totaling mere millions of dollars instead of billions.


#17

And doubtless those who supported that tax code change cheered it on: “That’ll sock it to those CEO’s!!!”

The law of unintended consequences. Defeats any other law, any time it gets a crack at it.


#18

One very important reason why so much is tied to short term stock performance is that for eight years now, the world’s central banks have made it impossible to get any sort of return on one’s savings anywhere else but in the Equities Casino.


#19

ive seen this happen first hand, and i dont think it’s necessary to ascribe nefarious motives. when people are judged on metrics, some people will move heaven and earth to meet those numbers because they think the numbers are the job.

i watched a whole line of products get canned to meet a budget, even when there were plenty of cash reserves, and then suddenly the division tanked because -surprise- there wasn’t anything to sell.

the person in charge felt they did their job well - and im sure they got a bonus for meeting their numbers. so far as i know they’re still there, even though a bunch of other people lost their jobs as a result.


#20

i can see the low interest rates must be causing havok, but aren’t the rates the result of the private banks behaviour ( subprime loans, and equity gambling ) which crashed the economy? behaviour incentivized by stock performance?

it feels like you might be reversing the chickens and the eggs.