Henry Mintzberg, wrote an excellent article for the Wall Street Journal today, No More Executive Bonuses!
This may sound extreme. But when you look at the way the compensation game is played – and the assumptions that are made by those who want to reform it – you can come to no other conclusion. The system simply can’t be fixed. Executive bonuses – especially in the form of stock and option grants—represent the most prominent form of legal corruption that has been undermining our large corporations and bringing down the global economy. Get rid of them and we will all be better off for it.
So, again, there is but one solution: Eliminate bonuses. Period. Pay people, including the CEO, fairly. As an executive, if you want a bonus, buy the stock, like everyone else. Bet on your company for real, personally.
All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit.
Too many large corporations today are starved for leadership – true leadership, meaning engaged leadership embedded in concerned management. And the global economy desperately needs renewed enterprise, embedded in the belief that companies are communities. Getting rid of executive bonuses, and the gambling games that accompany them, is the place to start.
It is an great article on bad pay systems that let a few top executives (and their hand picked board members) in many companies to loot the treasury of the company. I have written about this problem many times, including: CEOs Plundering Corporate Coffers – Excessive Executive Pay (2005) – Narcissistic Cadre of Senior Executives – The Best Leadership Is Good Management – Another Year of CEO’s Taking Hugely Excessive Pay – More on Obscene CEO Pay – More on Failed Executives
There are executives that don’t act like corrupt dictators looting their country, unfortunately they are less common than those that act like looters. And they all seem to have built cultures that taking respect for people is more important that feeding a few bloated egos. Akio Toyoda’s Message Shows Real Leadership, Tony Hsieh, the Zappo’s CEO – Warren Buffett – Honda has Never had Layoffs and has been Profitable Every Year
The obscene pay is not just a matter of people taking a tens of millions of dollars they don’t deserve. Companies whole management systems are distorted in ways that lead the company to risk all the other stakeholders future for the potential gain of a few senior executives.
I thought a bonus was a reward for good results or performance. These systems need to stress long term performance and not motivate short term gains. Don’t reward failure. Maybe that is someone not worth the pay.
I do believe in the capitalistic free market society where we can reward great results. I just don’t understand rewarding failure.
John, you beat me to the punch! I just wrote a piece on this article for Evolving Excellence that will run in a day or two. I link to a few of your posts on the topic as well.
Though I think it would be reasonable to keep bonuses, but cap them at x times salary, where x < 1 or so. Keep it interesting, but not too interesting.
I heard Warren Buffet (pretty sure it was him) about a year ago suggesting the UK government could do worse than to take the short term pain of allowing one or two big ones to go under to provide a bit of space in the sector and also teach the others a lesson. They did not, of course, follow this line and bailed them all out. Consequently, whereas previously the financial sector always suspected they’d be bailed out if they screwed up, they now know they will be bailed out. Is this “heads I win, tails I win” situation likely to lead to more responsible behaviour? Probably not. I do agree that the term “bonus” appears to have s different meaning and context in this sector too
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