Engaged WorkforceLearning

Executive Compensation: A Fine Line for the VP of HR to Walk

When under the gun to overpay the CEO, know what your options are. Protecting the organization’s greater interests is an altruistic goal, but don’t forget about self preservation when it comes to time to get out.

by Matt DeLuca

Last month, we discussed the biggest challenge to survival for the HR pro. This month, while taking more time to dwell on this crucial issue, we identify a bunch of steps to ensure professional effectiveness survival (and to stay out of jail) while passing through this treacherous minefield of executive compensation.

Before we continue though, I want to be sure everyone out there is aware that a former HR director at Brocade Communications has just had civil charges filed against her, at the same time that the CEO and CFO were also charged that all three “routinely backdated documents and evaded rules requiring Brocade to publicly report these compensation expenses,” according to prosecutors.

We want to have a seat at the table, but do we want to be charged with conspiracy or something worse? I want to be sure, too, that you are aware that no compensation consultant was also charged.

I feel strongly that the only hope is the board of directors, but how frequently is the CEO also the chairman? Even if you happen to be fortunate and have directors on an effective board that truly understand their oversight and governance roles, they will obviously be concerned that the rate of pay is based on the most appropriate market. You still will have to face the fact that others are not playing by the same rules, must answer the question of why the CEO should be penalized by being paid less than others.

I may sound like an idealist, but there are effective CEOs out there marching to their own drummer who are not named in any SEC charges, civil or criminal or determined to take every last penny they can from their organizations. As for other CEOs, do they really need to be paid dividends on restricted stock they have not yet earned? The board and the chief executive need to hear that. It is a tough sell, but the alternative is to threaten the very survival and well-being of the employees who put their trust in you, the HR professional.

SO WHAT TO DO?

  • First, always remember that one of your key HR roles is that of human capital steward. Any excessive payments in whatever form to the CEO and his or her top team may be injurious to the well-being of the entire staff. Protect the organization’s assets (especially its people) as if they are your own. Is there any justification for a $25 million compensation package even if the CEO says that he or she wants the HR head to be the second highest paid person in the organization?  You need to say no if it does not seem right.
  • Build relationships with board members, especially the compensation and auditing committee.
  • Educate them about compensation. Protect the organization from greedy CEOs but at your own peril. Better get out before they throw you out.
  • Keep up with your reading to be certain you know what is going on elsewhere. Aren’t you glad your organization has not been accused of postdating options?
  • Build relationships outside the organization, and remember that you should find and develop relationships with organizations that exude high standards in executive pay and other good governance issues.
  • Pay the check for all and any compensation consultants retained by the organization.
  • Quit and move on if there is any reason to doubt the pay practices of its executive team and the board. Have you ever interviewed any former employees from Enron or HealthSouth for a job with your organization? I have, and their prospects for great career opportunities arereally bleak. (Should they try to lop four years off of their resumes? Or is an admission of association a lesser offense to the prospective employer?)

“These are the times that try men’s [and women’s] souls,” has been said before, and it is certainly appropriate to raise it again this time from an HR perspective.

The stakes are getting higher every day. Are we going to compromise what we truly believe to be fair and appropriate when pressured and enticed to get on the bandwagon for outrageous executive compensation? Hopefully, you are in an organization where that is never the issue. If it does surface, just be ready for all the stakeholders you are expected to serve, starting with the employees themselves.

Tags: Engaged Workforce, Learning

Related Articles

Menu