John G. Self wrote a post today concerning executive compensation among hospitals. For technical reasons I was unable to leave a comment, so I’m leaving it here. It’s an important topic, and one that certainly stirs passion, especially in the wake of the collapse of financial institutions last fall. Read John’s post and then read my reply:
Well-articulated post and I agree with the general sentiment concerning the recruitment and retention of executives with talent and vision and incorruptible commitment to stakeholders.
Yes, there is a back-lash to executive compensation: some of it merited, some of it uninformed, some of it part of the scapegoating mechanism invoked in any crisis.
Yes, CEOs have it tough. But you know who also have it tough? Nurses. Doctors. We aught to include the compensation for nurses in your argument as well: you can have the best CEO in the world running a hospital, but it’s for naught if the nursing staff isn’t compensated well. If I were the CEO of a hospital and my nurses weren’t compensated well, I wouldn’t be asking for a raise for myself until they and other staff received the compensation, resources, support and respect they deserve.
I also think that too often “qualified CEO” means high-paid CEO. Over the last 20-30 years, many companies entered a mad race for the “best and brightest” and so they settled on compensation as the way to attract that talent. But there’s always diminishing marginal returns: a CEO who was paid $250,000 per year yesterday isn’t going to perform twice as good if his salary goes up to $500,000. Boards of Directors need to get away from that way of thinking and get more creative. After all, they’re beholden to shareholders and its their right and duty to make their companies places executives would love to lead.
Yes, compensation is important. But so is knowing that the work that’s done is meaningful and something worth pursuing in its own right. If it isn’t, then what you are left with aren’t talented executive leaders. Instead, you’re left with overpaid, mediocre and unpassionate MBA grads.
It’s unfortunate that we permitted executives in the financial sector to abandon the backbone of capitalism (investing in the long-term) for the belly of insatiety (short-term gain). And now CEOs in all other sectors will feel heat from the public.
True executives lead. They invest in trust, they sell hope and they share the wealth accrued by the communities they lead. The more CEOs do that, the more likely the public will once again entrust them to execute the noblest tasks of capitalism. When that happens, the compensation will be a pleasant side-effect.
Until then, CEOs will have to do what the rest of us must now do: work harder, be more creative than ever before, exercise financial discipline and aim to be remarkable for remarkability’s sake.