Amid the shouting surrounding the announcement that Wall Street paid out some $18 billion in bonuses for 2008 is a sense of outrage. There is real anger that the architects of the global financial crises are still benefiting mightily from their perfidy.
Or so goes the latest trope from the popular business press.
The reality is that executive compensation is viewed as a zero-sum game; to articulate in favor of such compensation is to be seen as an apologist for rewarding bad behavior. This places public relations professionals in an awkward spot – one that is so uncomfortable that the usual action is inaction. Typically, “we don’t comment on executive compensation issues” is the only reply.
But what if we add our voices to recommending a different path?
In a posting on the Harvard Business Review Editor’s Blog, Adi Ignatius enumerates several ideas that emerged from a panel on the topic at the World Economic Forum in Davos, Switzerland.
- Act now. The current crisis almost requires companies to review their compensation structure. Now is the time to ensure that the approach is in line with company and stakeholder values. [Addressing this element with HR should be a regular part of our interaction with our support area partners. Helping them understand the internal and external dynamics of the topic is or should be in our sweet spot.]
- Stay ahead of the regulators. The private sector should voluntarily try to come up with a set of broad, principle-based guidelines on what appropriate compensation practices and ratios should be. If the private sector doesn’t do so, government regulators may well step in and do it for them. [This should be a topic of conversation in professional associations, including PRSA, IABC and SHRM, among others.]
- Watch the consultants. When outside consultants are brought in to advise on compensation, it inevitably feeds into an upward pay spiral. One approach would require that anyone who advises the board on compensation must be fully independent–that is, in no way beholden to the CEO (say for contracts to do other work for the company). [Making our leaders aware of the risks and potential issues is our responsibility.]
- Be transparent. Publish the earnings not just of the top few execs at the company but of, say, the top 20. And along with that publish the list of bottom 20 (with names omitted, of course). Media reports on the discrepancy might lead to self regulation to narrow the gap. [We should have an opinion on this idea – whether we agree or not.]
- Reputation matters. In determining compensation, boards should find ways to look at a wide range of behaviors, and not just stock price. One idea is to link pay somehow to the reputation of the company, to help eliminate “bad behavior” by CEOs. [Reputation metrics, as with any measure, need a champion within the enterprise. Why not us?]
- Create leaders. Companies should remind CEOs that leadership is not simply a matter of having some subordinates and making a lot of money. It’s about giving employees a sense that they’re part of something important. Compensation could be linked in part somehow to an evaluation of whether that goal is met. [Linking leadership performance evaluations to employee engagement metrics surely must be considered a best practice. The Gallup Organization lists this step as essential to creating a business climate that leads to engaged employees.]
- Steal that model. Many private equity firms compensate their CEOs with a combination of short-term and long-term incentives. Part of any annual bonus payout goes into a pot. After several years, if the company has met its performance goals, the money is paid out. If not it is ”clawed back ”to the company. This could be adopted more broadly for CEOs of publicly traded companies, to get beyond the short-term perspective that now tends to dominate. [Involving the investor relations function in this discussion could yield benefits – how would Wall Street react to such innovative compensation practices?]
- Change the board. It may be time to overhaul how boards are elected. A preponderance of outside directors, for example, may add up to a group that’s afraid to challenge the CEO on such tough issues. [What ways could we suggest to take advantage of changes of this kind? A tough, visible board would prove to be a strong third-party source for news media and other constituencies, including the employee and customer bases.]
Bear in mind that PR professionals’ involvement in the issue of executive compensation isn’t limited to external constituencies. The employees and customers harbor many of the same misgivings regarding executive pay (admittedly, some motivated mostly by envy) as the news media. If compensation policy were better informed by an understanding of its reputational and brand impact, the policy might be better for it. Because of our wider, more strategic view of the organization, Public Relations people are positioned to be a reality check and trusted counselor for this urgent issue.
Sean D. Williams
Member, Commission on PR Measurement & Evaluation