What's Wrong with Executive Compensation
What 's Wrong with Executive Compensation?
A roundtable moderated by Charles Elson
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HARVARn RIKINFSS RFVIFW
When it comes to rewarding managers, does top dollar really buy top performance? Experts weigh in on one of the most important issues in business today.
cannot overpay a good CEO and you can 't underpay a bad one. The bargain CEO is one who is unbelievably well compensated because he 's creating wealth for the shareholders. If his compensation is not tied to the shareholders ' returns, everyone 's playing a fool 's game." Today, the dot-bomb, the telecom bust, and the corporate accounting scandals seem to have done for that logic what "Chainsaw Al" did for Sunbeam. The value that many superpaid CEO superstars supposedly created has largely disappeared, and the likelihood of it being recovered anytime soon seems remote. Indeed, the very profits that many of the companies reported appear to have been the product more of auditors ' imaginations than of any CEO 's strategy for seizing or creating value. On top of all that, a good number of senior executives treated their companies like ATMs, awarding themselves millions of dollars in company loans and corporate perks. It 's hard to dispute the idea that executives were somehow corrupted by the dazzling sums of money dangled in front of them. So what 's wrong with executive compensation, and what can we do about it? To explore these questions, HBR and the University of Delaware 's Center for Corporate Covernance convened a roundtable of compensation experts last October on the university 's campus in Newark, Delaware. The 12 panelists represented an extraordinary diversity of viewpoints, from CEOs to investors, from the professionals who advise them to a chief justice who rules on their disputes. The discussion was moderated by Charles M. Elson, the Edgar S.Woolard, Jr., Professor of Corporate Governance at the university. Elson also serves as an independent director at a numberof major
A roundtable moderated by Charles Elson
a M
•*>*.
HARVARn RIKINFSS RFVIFW
When it comes to rewarding managers, does top dollar really buy top performance? Experts weigh in on one of the most important issues in business today.
cannot overpay a good CEO and you can 't underpay a bad one. The bargain CEO is one who is unbelievably well compensated because he 's creating wealth for the shareholders. If his compensation is not tied to the shareholders ' returns, everyone 's playing a fool 's game." Today, the dot-bomb, the telecom bust, and the corporate accounting scandals seem to have done for that logic what "Chainsaw Al" did for Sunbeam. The value that many superpaid CEO superstars supposedly created has largely disappeared, and the likelihood of it being recovered anytime soon seems remote. Indeed, the very profits that many of the companies reported appear to have been the product more of auditors ' imaginations than of any CEO 's strategy for seizing or creating value. On top of all that, a good number of senior executives treated their companies like ATMs, awarding themselves millions of dollars in company loans and corporate perks. It 's hard to dispute the idea that executives were somehow corrupted by the dazzling sums of money dangled in front of them. So what 's wrong with executive compensation, and what can we do about it? To explore these questions, HBR and the University of Delaware 's Center for Corporate Covernance convened a roundtable of compensation experts last October on the university 's campus in Newark, Delaware. The 12 panelists represented an extraordinary diversity of viewpoints, from CEOs to investors, from the professionals who advise them to a chief justice who rules on their disputes. The discussion was moderated by Charles M. Elson, the Edgar S.Woolard, Jr., Professor of Corporate Governance at the university. Elson also serves as an independent director at a numberof major