Aligning the interests of executives of a company with those of shareholders is the motivation for the welter of forever-cheap share options, piled on overlapping benefits, flower and football allowances, indefensible private jets, stratospheric salaries, multi-generational pension programs, profit-sharing even if there are no profits, all goodies it is now fashionable to pay to top corporate brass. Boards shower senior executives with megabucks at the advice of headhunters and compensation consultants to keep them loyal. Since many board members are themselves top corporate executives they are keeping the payout high also for themselves.
But you cannot buy loyalty. Just in case you haven’t noticed, these big bucks do not produce CEOs who are doing their best for the company. In fact, the focus on monetary perquisites attracts to businesses people whose motivations are mainly selfish greed. This has been displayed for the world to see in the most recent top level CEO blow-up, that of Mark Hurd from Hewlett-Packard. Mr. Hurd has departed, taking his options and pension overpayments with him with the agreement of the Board of Directors (why?)
This resignation was over a supposedly non-illicit relationship with an employee of a supplier to H-P. How can a CEO have any relationship with a supplier staffer, however talented and beautiful, without violating the terms of his office? The trysts Mr. Hurd had the ineffable chutzpah to fund out of his H-P expense account.
I do not expect companies to be run by Mother Teresa, out of saintliness and altruism. But exclusively playing the money card to lure in and keep the sinners seems wrong. You get a narrow crude person running your company with all that focus on loot.
Why not appeal to the executive’s creativity, a chance to make a mark? Give him (or her) a crack at getting into the Harvard Business School casebooks for doing something well. Appeal to their ambitions to build a reputation. Give them a chance to make their mark. Let them build or repair a firm to become famous. Give them a challenge rather than a windfall.
In my opinion the disconnect between the top levels of the corporate sector and the interests of the very companies supposedly being served is encouraging and justifying state-sector meddling in business. In capitalist countries, there should be much more resistance to the overreaching arm of the government in running things. Statism feeds on the suspicion that the guys running the show are merely interested in lining their pockets.
And while I know I will get dumped on by my readers for saying this, taxing the benefits package at the statuatory rate would help right the balance too. Paying taxes does not necessarily make businessmen less good at their jobs. Today Bloomberg revealed that Sweden, the home of the highest-rate tax regime on earth just finished a quarter in which 80% of comapnies beat the analysts’ consensus forecasts for their earnings. Clearly, the top Swedes are doing a good job running companies despite the fact that Stockholm is taking most of their salaries away to fund a panoply of welfare programs.
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