Sane Compensation

There is apparently some secret chromosome, an as-yet unidentified ingredient in the DNA of human beings, that compels us to stretch, to push the limits, to strive for just a little bit more. When the speed limit is 30 mph, we drive at 35; when it’s 55, we drive at 60. Teens with a midnight curfew test 12:15 a.m., then 12:25 a.m. We say to ourselves from now on, we’re not going to pay more than X for a tie, and then succumb to the one that costs X plus.

Most of us, no matter how often or in how many ways we stretch various limits, never let the tendency get completely out of hand. If the curfew is midnight, we’re not likely to come in at six in the morning; if the speed limit is 55 mph, we’re not likely to do 95. Although it may sound crazy, most of us instinctively show at least reasonable moderation when it comes to our excesses!

So why has that not been the case with so many corporate tycoons and Wall Street executives over the last decade or more? Why have compensation committees of corporate boards lost any semblance of a sense of reality, of appropriateness, of balance when approving executive salaries and bonuses? Are they all missing that DNA component that says, “It’s ok to stretch a little—all right, more than a little—but let’s not get crazy.”

An awful lot has been written and discussed recently about the perceived excesses of executive compensation in the absolute, in relation to others’ compensation, and in relation to poor performance. And after reading a lot about it, I still don’t get it. I still don’t understand how compensation committees can literally squander shareholders’ money by awarding out-of-proportion, out-of-this-world compensation packages to CEOs and other top executives, especially when there are essentially no penalties for lack of performance—or worse, for damaging performance.

Why would a board in control of its senses agree to provide a retired CEO with free laundry service and fresh flowers for life? Granted, those were bizarre aberrations, but why would many companies even grant the far more common perks of lifetime use of a car and driver, secretarial service and offices, unlimited air travel, et cetera, to CEOs who have the ability to pick up the tab for those things themselves?