Companies & Industries

Ego, Not Arrogance, Drives CEO Pay


Executives may be excessively compensated, but government regulation is not the answer. Make them publicly accountable instead

For some reason, I haven't directly addressed the topic of CEO pay in any of my writings over the years. It's not because I'm afraid to or that I find it uninteresting. I think it has more to do with having such mixed feelings.

On the one hand, I think the amount of money paid to so many high-profile chief executives is bizarrely and tragically excessive. On the other hand, I'm not in favor of addressing the problem through regulation and government involvement.

First off, my take on the excess is different than most. See, I honestly believe that the ridiculous salaries and compensation some CEOs receive is a function of pride more than greed. I may be naive, but I just cannot fathom how someone who already has five homes and enough money socked away to put 75 kids through college can really want more. What is it they need the money for? Anyone with that much must have already come to the realization that it can't make them happy.

That's why I honestly believe the pursuit of higher salaries, bigger bonuses, more lucrative stock options, and fluffier golden parachutes is more about keeping up with the Joneses than it is about money. CEOs know what their peers earn, and they want to compare favorably for the sake of their egos more than their bank accounts.

Regardless of the reason, the excessive payouts to executives—especially to the ones who fail—is just plain wrong. But what to do about it? Most fiscal matters the government involves itself in get worse, not better, and letting bureaucrats and politicians tamper with a free-market economy feels like a very bad idea to me.

Performance Pay

And for those executives who lead their organizations to financial success, a healthy reward for their work can be justified. Running a company is a demanding and lonely job, and success should be rewarded. However, failure should not be, and far too much of the compensation awarded to chief executives is guaranteed and not tied to performance.

So what is our recourse?

Because of my belief that pride is at the heart of this problem, I think the solution must focus on reintroducing a healthy sense of shame—that's right, shame—to the marketplace. CEOs should be made publicly accountable for the amount of money they make, and the men and women who serve on the boards that approve their compensation packages should share in that accountability. What would that look like?

First, the CEOs of publicly traded companies should make their pay packages transparent. Yes, I realize that such information is already available to anyone who takes a few minutes on the Internet to look for it. But I'm thinking of something easier and more naked.

Perhaps CEOs should have to explain their pay to their employees twice a year, justifying the money they make in light of their contribution to company success. And I'm not thinking of a formal board meeting where an employee would have to risk his or her hide to make a statement but rather an online town hall with video coverage in which employees can anonymously and respectfully demand an explanation.

And maybe those same CEOs should be pressured to include their salary and compensation packages at the bottom of their e-mail messages. For instance:

Fred Johnson

CEO, XYZ Corporation

Phone: 212 555-1212; e-mail: fred@xyz.com

Compensation: $2.5 million salary, 12 million stock options, $1 million guaranteed bonus

And wouldn't it be interesting if whenever a CEO receives a ridiculous bonus after a dismal year, or a golden parachute as a reward for running a company into the ground, he or she should be forced to sit in the lobby of the company's building for two weeks and endure the reaction of employees? And the same should hold for the head of the compensation committee.

Finally, more industry analysts and television commentators should ask CEOs questions about their compensation. Because just knowing that they might have to explain publicly why they make so much money would give executives a reason to pause and reconsider if they would rather be known among their peers as getting the most lucrative deal or be held in high esteem by employees, customers, and shareholders for being responsible and humble.

But whatever we do—and I mean this—let's do it with love and charity. If we simply demonize CEOs and create an 'Us vs. Them' atmosphere, we only contribute to the animosity and division that probably enabled this situation to come about in the first place.

Pat Lencioni is the founder and president of the Table Group, a firm dedicated to providing organizations with ideas, products, and services that improve teamwork, clarity, and employee engagement. The widespread appeal of Lencioni's leadership models have yielded a diverse base of speaking and consulting clients, including a mix of Fortune 500 companies, professional sports organizations, the military, nonprofits, schools, and churches. Lencioni is the author of eight best-selling books with over 2.5 million copies sold. After six years in print, his book The Five Dysfunctions of a Team continues to be a fixture on national best-seller lists.

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