Friday, January 22, 2010

Executive Pay

There is an assumption in Corporate America (a very self-serving assumption) that if you don't give astronomically grotesque pay structures and bonuses to executives, then they cannot attract the best executives and stay competitive.

I think this myth can be addressed in two ways: one by citing contrary real-world examples, and a logical argument that addresses the true nature of motivation.

Southwest Airlines is a perfect example that consistently gets ranked as one of the best corporations of America, making the top 10 several years running. One key aspect of this corporation is that they DO NOT have the disproportionate executive compensation structure. Furthermore, some of the worst instances of outrageous pay and bonuses were to the very companies that brought down the entire world economy along with their own failures. Not only were these overpaid executives not at all convincingly "the best talent attracted" but in fact, the exact opposite seems to have been the case, that they excessive compensation may have ENCOURAGED risky and foolish decisions in a delerium of greed and excess.

Since there seems not only to be no connection between outrageous executive compensation and having a well run company that doesn't implode taking the world economy with it, but in fact seems to actually encourage and create the very environment that makes such an outcome to be almost inevitable! This brings us to the second point to try to understand what it is that really does motivate behavior. Excessive pay seems to motivate pillaging, short term gains, taking excessive risks, corruption, and outright shenanigans. Instead what motivates the best executives are people who REGARDLESS of pay, want to to a good job and run a good company, who enjoys what they do, not is looking to make a quick buck.

If in fact, sociologists regularly find the most successful individuals in any and every sphere in any and every domain in society is always motivated by a desire to do their best and they are passionate about the domain their in. Otherwise I know of no examples where financial compensation has ever stimulated and motivated the striving to be the best. It seems most effective in getting people to go against their own consciences and engaging in iffy moral behavior, but it rarely if ever brings out he best in us.

David Stockton (served under Reagan) suggests now that bloated Banks are parasitic on the economy and making the middle class disappear.

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