By Carolyn Heinze
One wonders if there was a surge in the bodyguard business during the height of Occupy Wall Street, when the movement’s “99 percent” protested against the less numerous, but much more affluent, “one”. Clearly, it was not a great time to be an executive…and the richer and more publicly known a person was, the more he or she served as a target to those who had had enough. Especially those who happened to be one of the “one percent” that caused this latest economic recession.
But not all executives are created equal, and arguably more than less make up a part of the “one percent.” The definition of “executive” is blurry, after all: depending on whether the company is public or private, what industry it’s in, and what markets is serves, an executive’s compensation package could look much different from those who make the headlines. And as every entrepreneur knows, just because a person’s business card has “president” after his or her name it doesn’t prevent that person from pitching in at the entry level when the going gets tough…or busy.
While recent times have regulatory boards emphasizing “pay for performance” and stricter reporting for public organizations, private companies are still able to hold executive compensation information closer to the belt. The question is: Should they?
“Financial information may be more guarded in a private company, but with respect to how people are paid, in my view, that should not be a secret,” said Peter Lupo, managing director at the consulting firm Pearl Meyer & Partners (www.pearlmeyer.com). “Younger people should understand that if they are successful with the company, and they take on more responsibility, they have an opportunity to earn more pay, and they should understand how that pay is earned.” He added that it’s not necessary to reveal all of the details associated with an executive compensation plan, “but you might want to say to a younger person that, as a senior executive, you could earn substantially more in a bonus, but that it’s dependent on overall company results. To me, disclosing that is beneficial, not harmful.”
Mark Szypko, managing director of compensation at Kenexa (www.kenexa.com), which owns the website Salary.com, argues that a reasonable level of transparency is wise because no matter how secretive a company is about its compensation plan, the employees will find out who is being paid what anyway. “It’s funny: We think nobody knows what other people are paid. We pay people in these hermetically sealed envelopes every couple of weeks and hope nobody knows,” he illustrated. “Everybody does know.” And, he added, even if they don’t know the exact dollar amount of an executive’s paycheck, they do know what kind of car he or she drives.
Szypko pointed out that over the past number of years, executive compensation packages have featured a closer correlation between pay and performance. “Pay for performance really needs to start at the top, making executives accountable for the overall performance of the organization,” he said. In being transparent, then, management should communicate to employees that executive incentives are tied to how well, or how poorly, the company performs. “Make sure that employees understand that the executives in the organization are very much tied into the success of the organization,” Szypko said. “If the company does well, the executive does well.” As should the employees, in the form of pay increases, or better benefits or, in some form or other, a bonus.
Bill Coleman, formerly of Salary.com and currently vice president of research and certifications at RetirementJobs.com, is also for transparency—to a certain degree. “One of the problems with too much transparency is you run the risk of people not understanding, or creating negative response,” he said. “It’s the old cliché: no good deed goes unpunished.” When you publish executive pay—be it in a private organization or public company—employees often have the tendency to react unfavorably. “They say, ‘He got paid what? I’m working here for $42,000 a year and I couldn’t get a raise, and the CEO just got a $50K bonus?’ That kind of thing doesn’t go over well in most places.”
This is where the push/pull comes in, Coleman noted. “Companies should explain to their employees what is going on at the top, but you don’t want to explain so much that you are basically handing them ammunition or cause for resentment,” he said. “I don’t at all mean to underestimate the intelligence of the people that are doing the day-to-day work, and I think in general they understand and appreciate the fact that the person on the top floor is doing a lot and taking a lot of risk, and taking on a lot of stress, and has worked long and hard to get to a level where they can run a business, and that they should be paid more for that.” But, he added, beware of how widely the books are opened. “I would err on the side of conservatism: How will this information be received in your organization?” If the answer to that is unknown, revealing every single detail may not be the best idea.
For Szypko, however, the argument for transparency is linked to employee retention, and when companies are overly secretive, it breeds a sense of mistrust. “As we start to emerge from this downturn, turnover is going to pick up significantly in organizations, he said. “One of the reasons employees stay where they are is because they trust the organization, and they trust and respect their management team. Absence of that would be a reason for employees to look beyond the organization.”
Coleman noted that just as performance and compensation is periodically reviewed at the general employee population level, this should also occur within executive ranks as well. “Keep in mind, or actually ask yourselves: Who are you paying? Why are you paying them? And what are you paying them for? Think about why you are doing what you are doing. Is that the right thing for your business?” he advised, adding that the answer to those questions may lead to a reconsideration of some component of the compensation plan, or some approach that has been taken: “The way you are paying those executives in particular should be tied to the things that you as a CEO, or as a board member, want the company to be doing.”
Heinze is a freelance writer and editor. She can be reached at email@example.com.Tagged with tED