Ignoring the worst examples of CEO pay abuse, what recommendations would you make to bring executive compensation under control? What do you think about 'pay-for-performance'? What would you include in your benefits package for senior leadership? How would you attract and retain strong leadership?
Given the excesses of CEO salaries, bonuses, and severance packages, there has been a populist backlash demanding restrictions upon CEO pay. But the goal of CEO compensation is not to create a more level economic playing field for America; rather it is to ensure that certain performance objectives are realized for shareholders. One possible method of aligning the interests of the CEO with the enterprise as a whole is to reward long-term rather than short-term evidence of improved organizational performance.
Sustainability measures such as increasing customer satisfaction; improving the corporate infrastructure; retaining and developing top talent are some of the new contingencies placed upon CEO salaries and bonuses. 'Pay for performance' in the short-term is problematic as an incentive. CEOs already have an incentive to show quick profits to justify their ascent to their position and salary level. Performance-based compensation that rewards long-term company performance encourages CEO to create a more healthy organization with a true foundation for the future. If long-term performance restrictions are not placed upon CEO salaries, it is far too easy to boost metrics by outsourcing critical operations or cutting long-term investments in research and development. M2Global Technology Ltd. has a specific metric that determines CEO and managerial pay based upon a combination of financial returns, efficiency, and customer satisfaction.
Stock options with restrictions that cannot be 'cashed out' for a number of years, or forms of equity that are dependant upon long-term goals also reduces the incentive for CEOs to quickly and artificially boost stock prices. They ensure that the CEO has a real, financial stake in the long-term health of the company. There is also growing agreement that hefty, unrestricted severance packages send the wrong message to CEOs -- and golden parachutes are also highly unpopular amongst ordinary shareholders.
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