Wall Street, like the Will Ferrell bomb Land of the Lost, has too many dinosaurs; business as usual isn’t moving fast enough to extinction.
In the wake of the financial meltdown, this has been a busy week for trying to reign in executive pay packages that encouraged bankers to take excessive risks and also setting pay restrictions for the top executives of seven firms receiving the largest amount of taxpayer bail-out money.
In governance circles there has been heated discussion about government involving itself in how private sector directors compensate company leaders. Around dinner tables there has been anger and confusion over why executives of bailed-out companies, as well as other executives whose companies’ financial performance tanked, can receive tens of millions of dollars for failed business strategies.
Two stories in The New York Times on Thursday, October 22 underscored the irony of the financial meltdown’s extremes. One story highlighted the plan Kenneth Feinberg, Obama administration special master for compensation, released reducing perks and the multi-million dollar cash compensation of the top 175 executives of the seven firms. http://www.nytimes.com/2009/10/22/business/22pay.html. Another story was about an Indiana trucking company that received 500 applications over a weekend for an administrative assistant job paying $13 an hour. Those applying included a former director of human resources, former Deloitte & Touche employee of 12 years with a M.A. degree, and a former I.B.M analyst with 18 years experience. The successful candidate had lost her job four months earlier as an accounts receivable manager.
The impact of the economic crisis has been felt in Indiana, the other 49 states and around the world. At home, its causes and best remedies to preclude another meltdown is one of the hottest topics in Washington. Wall Street once again made itself, and been made, the poster child for a risk and reward compensation strategy that is way out of touch with Main Street.
There is a new call to leadership in the boardroom. How broadly will the recommendations of Feinberg and his team be adopted by companies not receiving federal bailout money? Will directors have long memories and shift the paradigm of executive compensation to ensure the linkage between company performance and what executives are paid? And if not, what does it take to stop business as usual?
The Conference Board created a task force on executive compensation involving directors of 40 companies; their report last month recommended among other things that compensation programs be designed to drive both business strategy and create shareholder value consistent with acceptable risk and through legal and ethical means. http://www.conference-board.org/pdf_free/ExecCompensation2009.pdf.
The challenge, as always, is how to achieve this, and in doing so escape the Land of the Lost.
Gael O’Brien The Week in Ethics
October, 24, 2009