Are million dollar salaries justified? Some board members think so.
In last month’s Killer Skills column, I promised to address one more major issue from the Annual SHRM Conference held in San Diego in June. At the conference, I really enjoyed all the presentations I attended except for one that continues to give me cause for concern. The topic of the presentation was compensation. The speaker was a compensation consultant from an old-line brokerage company that is currently providing HR services and had just been sold to a major bank.
I always wonder about those who make or advise executive compensation decisions today, as executive compensations continue to grow to more stratospheric heights with each round of CEO replacements. The spillover effect is now moving into HR with both positive and negative consequences–is $21 million really the appropriate total compensation number for at least one HR executive I know of?
At the conference, this particular compensation consultant waxed euphoric about how she “loves CEOs.” I had been concerned before she unapologetically shared that comment with the group, since I wondered if she had an appropriate sense of what her role entailed. How could she function effectively as a compensation consultant with her strong, boldly-shared bias? No sooner, though, had I put time and space between her comments and myself than I came across a column by Stanford Business School Professor Jeffrey Pfeffer in the July edition of Business 2.0.
In his monthly column, Professor Pfeffer, whom I had been familiar with in years gone by as a training and development professional, states, “Its infuriating when outsize CEO pay packages produce lackluster results. But get over it. Bad executives eventually wind up overboard.” Interestingly enough, Professor Pfeffer also serves on the Board of Directors for several companies and has an influence over executive pay practices. Not only does he consider coming to terms with CEOs’ salaries that often rival top professional athletes (already a problem if you ask me), but he also proceeds to quote Jeff Miller, a partner at five-year-old Redpoint Ventures, “who has served on several boards.” According to Miller, “If you think your CEO is doing a good job, pay him [sic!] accordingly. If not, get a new one.” I Googled Mr. Miller to find out a little more about his background in compensation evaluation. He has an MBA in electrical engineering and computer science and has worked for at least one prestigious organization, Intel. The Redpoint Ventures Web page gives no indication where Mr. Miller had the opportunity to develop his compensation expertise. I wonder what his opinion is about the demise of such organizations as Sunbeam, Enron, WorldCom, and Eastern Airlines and the role of their CEOs (not to mention their Boards).
My point is this: I would never assume to make decisions about electrical engineering or computer science or any other field for that matter; but I do know people who have spent a lifetime learning the complexities of the subject of compensation. I would encourage Jeffrey Pfeffer, Jeff Miller, and the nameless consultant mentioned previously to make the effort and give the time to learning compensation. They should seek out serious compensation experts like Graef Crystal and Bruce Ellig, to name just a few. In fact, Ed Lawler, Ph.D., a leading researcher and author in HR management and compensation (and named by both Human Resources Executive and Workforce magazines as a visionary in the field) is at Mr. Millers alma mater. This is important not only for their own edification but also for the well being of the organizations they continue to serve. To do otherwise is truly to continue on a dangerous path.
It is important to ensure that those from whom you seek expertise have a real respect for and understanding of the subject matter. What do you do if one (or more) of your board members is influenced by the compensation thinking of Jeffrey Pfeffer or Jeff Miller? Unless you address their advice head on with the backup and research of experts in the field, proceed at your own risk and dont be surprised if your stock options and retirement plans go the way of Enron and WorldCom employees’.