Integrity
Matters
May 14, 2003
Some
in boardroom have say on own pay
Question: (E-045)
It is being discussed and written about seemingly everywhere:
American CEO's, on average, this past year were paid
241 times as much as the average worker. This seems unfair
and a violation of integrity. Am I right?
Response:
Grossly overpaid executives are enabled to "take" all
they can get by their very own boards of directors. Where
they are being over-compensated, not only are they are
taking money from their own employees, but also from
the risk-taking investors who entrust them to create
an appropriate return.
However, like spoiled children who have just finished
a well-balanced meal -- in these cases a meal that had
already included a wonderful dessert called large salary
and bonus, plus stock options and retirement packages,
these self-absorbed bosses are begging for even more.
Are
these compensation packages unfair? No, not if the
results match the rewards. If the leadership of an
organization enhances the productivity and profitability,
then what is wrong with rewarding those who generated
it? There is no integrity violation when individuals
do what they are supposed to do and then are rewarded
for it.
This is not about socialism's equal distribution; rather,
it is about what causes workers and bosses to respect
and appreciate one another, year after year, and still
want to work together, productively in the future.
Is the crazy high pay for mediocre or
poor performance an integrity issue? Certainly, it
is. According to Holly
Sklar’s book, "Raise the Floor: Wages and
Policies that Work for All of Us," when CEO's are
paid, on average, 241 times that of the average worker,
then the boards of directors’ levels of accountability
should be evaluated. Obviously, sanctioning compensation
inequities means that board members are not thinking
and acting responsibly on behalf of either their own
investors or on behalf of the work force upon which their
enterprise depends.
Compensation committees can recommend any salary and
benefits package they can dream up. However when it is
the board of directors that must approve these gigantic
rewards, then they must do the work for which they are
paid: Ensure the viability of the enterprise (people,
products, markets, services) and reward investors appropriately.
Any other leadership approach by a board of directors
would seem to border on the illegal and the irresponsible.
Certainly, decision-making regarding outrageous CEO
pay by boards might cause investors to question their
judgments in other areas.
There is little doubt that rank and file employees have
already concluded that such decisions are violating the
integrity and trust that needs to exist between themselves
and their organizations.
