Roundup: executive pay and punishment

According to the theory that where there’s smoke there’s fire, the legal and political fuss raised in recent months over excessive, inappropriate, and allegedly illegal executive compensation schemes must have some basis in fact. It can’t all simply arise from envy at such wealth - and that wealth can’t always be explained away as acceptable due to the extraordinary risks these executives take, or the exceptional value that, according to one measure or another (also backdated/refashioned according to events?), they create.

At the very least, there’s plenty of smoke. And there’s plenty of running to and fro about it.

Consider excessive pay: As a result of Home Depot’s recent issues with the gargantuan pay package of its previous CEO, the current one has made careful efforts to ensure that his is more closely tied to performance and aligned with shareholder interests. The peculiar thing about this is that it is he - and not the board - that has been proactive on that issue.

Here’s a curious twist to the options backdating scandal: In some firms, options were inappropriately backdated, but the executives to whom they belonged were not aware that this had been done. As a result, the companies are making special payments to these executives to compensate them for the money they lost as a result of their not benefiting from illegal activity undertaken on their behalf without their knowledge which was later discovered, stopped, and restored. Compensation for being so unfortunate as to not benefit from wrongdoing? You figure it out.

It’s no wonder that such obtuseness is attracting so much attention. Efforts to restore some degree of seemliness to the issue range from persuasion to compulsion. As mentioned previously in these pages, even religious figures are getting into the act, attempting to persuade executives to reduce their own pay. At the other extreme, the US Congress is launching another effort to cap executive pay, this time by slipping into a bill raising the minimum wage a provision limiting the amount of deferred compensation that can be paid to an executive. This may be political populism, but that is like a grass fire: it only burns when fanned.

The management profession seems, sometimes, to have slipped its moorings. The self-absorption and greed that we see reported so widely in the press doesn’t necessarily represent the true overall state of things, but it clearly reveals a crevice, perhaps a widening one, in the fiduciary integrity of the corporate governance environment. If we don’t solve it ourselves, we will have solutions imposed on us. It is well past time to stop whining about outside interference, and to get to the business of straightening our own house.