Pay for Players
| posted by Heath RowToday's Wall Street Journal features a special section on the WSJ/Mercer 2004 CEO Compensation Survey in which they declare "Goodbye to Pay for No Performance."
While it seems that leaders are being held more accountable, the most interesting aspect to me is the pay trends chart on page R7 of that section of the print edition. Watch the dotted line. 2001 was a very bad year. Remember how bad? What a dip! And the picture in terms of corporate profits and CEO pay -- compared against employees' pay -- since 2002 is interesting.
I had no idea profits were up so high -- or that executive pay was increasing more than it did even in 1999 despite no parallel, readily visible economic boom. And... with profits and CEO pay so high, the straight-line look at employees' pay is sobering -- and somewhat sad. Sure, the rank and file didn't take the knock CEOs felt in 2001, but shouldn't employee pay raises be more in step with profits and CEO pay? Pretty flat!
Employee ownership of companies is on the wane. ESOPs are evolving. Are these all indicators that the CEO as hero is back? That only the CEO is responsible for corporate performance? That these are the days of "No Pay for Performance" as far as the rank and file are concerned?
Comment
Recent Comments | 1 Total
April 13, 2005 at 4:24pm
Corey RosenIts just plain silly to ascribe so much credit for a companys success to a CEO, or any other single individual. Employees at every level make a difference to how well companies perform, whether it is how they treat customers (think Southwest Airlines or JetBlue compared to just about any other airline), create new products or services, find better ways to get shipments out on time, or any number of other individual and team actions. Indeed, its hard to find a CEO who doesnt say that people are our most important asset, even though the companys reward system shouts Im the most important assetin fact, I am just about the only important asset.
Broad employee ownership is one way to deal with that. Employee stock ownership plans (ESOPs) are the most comprehensive of these broad-based plans, providing ownership to most or all employees as an employee benefit. ESOPs have been growing lately, and ESOP companies are doing very well economically (better than they would without an ESOP, research shows). But many companies are choosing to cut back on broad-based options and other forms of equity sharing. Thats bad news for employees and shareholders. Research shows that companies with broad-based plans perform better than those without them, while companies that focus more and more equity on executives do worse.
For a comprehensive review of the research on who should own equity, go to http://www.nceo.org/ceeo/ceeo_research_appendix.pdf.