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Gut Check: Is Your Pay Aligned With Your Performance?

If you work with, and study, and write about leaders, like I do, there is one issue that you just can’t escape.

Executive compensation.

Following a recession that saw trillions of dollars in wealth evaporate, and millions of people displaced from their jobs, scrutiny of the pay and benefits provided to executives remains a top-of-mind issue for many governments and their citizens.

Given the rise of the shareholder activist, the propensity for governments to impose legislative limits, and the sheer negative publicity that comes along with gaudy and unjustified paychecks, you would think that senior executives had learned to earn their pay and benefits. Not so.

The business world reacted recently when it was reported that Yahoo CEO Marissa Mayer was in line to receive $55 million in severance compensation should her company be sold off. The prospect of a sale is very real, given that Yahoo’s board is now populated with anti-Mayer shareholder activists that want the company put into new hands.

Unfortunately for Mayer, she has become one of the poster-children for the executive compensation debate. Despite failing to restore Yahoo’s core businesses to profitability, she has continued to rake in enormous pay packages. Last year alone, she was paid $36 million according to SEC filings, despite the fact Yahoo has seen two years of double-digit revenue declines.

But let’s face it, while the media jumps on Mayer, she’s not the only one.

I have long argued that our challenges and problems with executive compensation will only be solved by the executives themselves. They are the ones who must make the effort to connect their pay to their performance without being forced by their boards or by government.

However, we see few examples of leaders doing that. The result is that many are forced into concessions that hurt both their brand and the brands of their organizations. Fortunately, there are some bright lights on the horizon.

I recently read with great interest about how American Airlines CEO Doug Parker changed the terms of his employment so that his salary and benefits are now directly connected to the performance of his company. It also means Parker is not guaranteed base compensation of any kind.

The decision to assume an “at will” employment status followed his decision to be paid only in stock last year. Bloomberg News reported that Parker’s decision to forgo the cash portion of his compensation package made him one of only four CEOs of companies listed on the Standard & Poor’s 500 Index that earned $1 or less last year.

“To be crystal clear, just because I don’t have a contract doesn’t mean I intend to leave American soon,” Parker, 54, said in a letter provided to employees. “Rather, it is just another way of demonstrating how much I enjoy what I do, my excitement about our future.”

For those of us who have been howling about the need for a new culture around executive compensation, this is very positive news. Parker is a role model that moves us one step closer to a scenario where leaders take it upon themselves to deal with this issue.

Again, I have pointed out in the past that despite the heightened awareness of excesses in executive compensation, the situation is not getting better. In a previous blog, I noted that the ratio between executive and employee pay is not getting smaller; in fact, it is getting much larger.

This is not a sustainable situation. Parker understands this, and has taken steps that has built faith and confidence in both American Airlines, and his leadership.

 This week’s Gut Check asks: Is your pay aligned with your performance?

 

 

 

 

 

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About the Author

Vince Molinaro is a speaker, consultant, executive at Lee Hecht Harrison, and author of the New York Times bestseller The Leadership Contract now in its second edition.

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