Executive compensation holds as much mystery and magic as the Great
Wizard of the Emerald City. Of course, if the curtain were to be pulled
back, the real magic would be found in how a lack of information,
combined with fear and imagination, have colored the pay of all
executives with the same brush. Remember that when Dorothy and Toto met
the wizard he was just as unhappy and scared as they were.
I find it amusing and frustrating that there is so much
misinformation about executive compensation. Let’s state the givens:
Yes, there are many CEOs who make more money than most people can
comprehend. Yes, executive compensation is a complex arena with many
assumptions and estimates being made at any given point. Yes, companies
spend a lot of time and effort on disclosure. So why am I frustrated?
Everyone discussing executive compensation has some type of an
agenda. Companies don’t want to upset their shareholders or fight with
the media. Journalists want a story that stands out among the noise of
the day. Shareholder advisory firms want to show their knowledge and
ability to shift practices. Consultants want to defend their past
practices or point out their superiority when compared to pay at
non-clients. Survey data providers want information that can be easily
understand and digested. Politicians want to look good to their
constituents without upsetting their contributors.
Each perspective leads to a different approach to the positives and
negatives of executive compensation. Companies tend to paint things grey
and play it safe. The media tends to hyperbolize and point out the
outliers. ISS and Glass Lewis point out new issues to remain relevant
and gain new clients. Consultants point out their successes and explain
their failures as “beyond their control,” or “not their fault.” Survey
data is defended as holistic even when it is often made up of a tiny
fraction of representative companies. Politicians focus on the obvious
problems and talk about them like they represent the majority of pay
practices (but, they seldom act in the same way.)
All of this posturing has turned the topic of executive compensation
into a kind of omnipresent wizard with terrifying powers and a
capricious temper. It’s spoken about in hushed terms or artificially
confident booming voices. The curtain is never really pulled back, since
everyone already “knows” what’s behind it.
Imagine if the wizard had simply invited Dorothy behind the curtain
the moment she arrived. Consider what his life would have been like had
he rejected the mysticism of his new role from the day he arrived in Oz.
Of course, he wouldn’t have had the power over people that mutual fear
and misunderstanding granted him. Perhaps he wouldn’t have also had a
lonely misunderstood existence that made him miserable.
When preparing this year’s proxy disclosure, say on pay voting and
overall communications regarding executive compensation, consider
pulling back the curtain on your pay. If you give people the truth only
the crazy will find a way to dispute it. If you give people the whole
picture you will lose the power of mystery but, in return, gain the
power of understanding.
(Dear Readers: Yes, I know that I have used the Wizard of Oz
twice in recent posts. No, I don’t know why, since I have not seen the
movie in several years. Who knew it was created to inspire compensation
articles?)
Dan Walter is the President and CEO of Performensation
an independent compensation consultant focused on the needs of small
and mid-sized public and private companies. Dan’s unique perspective and
expertise includes equity compensation, executive compensation,
performance-based pay and talent management issues. Dan is a co-author
of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts
a free networking group. Dan is frequently requested as a dynamic and
humorous speaker covering compensation and motivation topics. Connect
with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay