The biggest dilemma for senior HR professionals: executive compensation. Balancing a line between pleasing the CEO and protecting the shareholders’ interest requires tact and the ability to navigate the land mines.
The New York Times has identified one publicly traded organization after another in an ever-expanding investigation identifying companies currently under scrutiny for suspiciously low purchase price of options granted to CEOs and other top executives. This examination just highlights once more the real dilemma that HR professionals must deal with when the topic is executive compensation and its various elements.
I still remember Graef Crystal being fired by Fortune magazine in 1992 (wow, that is a long time!) when he identified Steven J. Ross, the CEO of Time Warner at the time, as the most overpaid chief executive of the year. Crystal did this in spite of the fact that Fortune is a Time Warner-owned publication. That was the last time he was asked to perform his survey service for the magazine.
I also recall what happened to the head of HR at Enron, and I would love to hear her side of the tale. I learned not too long ago that she was specifically banned for life by ERISA from ever becoming the trustee for an ERISA-sponsored plan again. To my knowledge she was the only one ever banished by that agency. I also know that she participated in a very generous home lending program. These were loans that the organization provided and were so generous that the executives allowed to participate never had to repay them. Her take was reported to be $1 million. I am not aware of her ever being under investigation for her role (or what she knew), and that may be good as well as bad news for the HR profession.
The point of this month’s article as well as next is that as difficult as the HR function is, nowhere is it trickier than when dealing with any programs that also impact the senior management team. This includes, of course, executive compensation (Although I wonder if HR is consulted before the decision is made to buy or lease a corporate jet. I had left the WWF—now WWE—just as the company went public and the jet decision was made after my departure).
It is a tricky topic and a real minefield because the relationships are so complicated. On one hand, all HR professionals want to report to the CEO. Don’t we all want to be invited to have a seat at the table? And what does that mean when the issue is the CEO’s compensation? (No problem you think, get a consultant. Anyone for Graef Crystal?) The whole issue, however, is a problem right from the start, even if you don’t report to the CEO. The reason is clear when you ask yourself, “Who is the one who will say ‘That’s too much,’” because the one who does will not be around too long.
One of the most complicated comp issue involves Home Depot and its senior HR professional who was awarded total cash payments in excess of $20 million in 2004, the year he left GE and joined the home improvement giant. There are critics who say that Home Depot’s CEO, Bob Nardelli, is overpaid and arrogant to boot—he did, after all, preside at this year’s annual meeting as a despot with limited opportunities for the shareholders to ask questions or raise issues. He did it alone because no other board member was in attendance. What makes this situation so complicated is that Nardelli is sometimes criticized as being overpaid. Separately, he has insisted that the HR pro reporting to him should be the second highest paid in the organization. Talk about complications!
The next 39 highest paid HR pros all received more than a million bucks, if my memory is accurate, but none anywhere near the $20 million-plus when these figures were disclosed.
If the “peer group” is truly a peer group, and they all are getting bigger bucks, then should your CEO be penalized if you think she or he is being overpaid?
Stay tuned next month as we discuss what you can do to deal with this complicated issue that puts not only your professional life on the line but that of your organization as well.