Alignment strikes out: this screwball notion never stood a chance--at least not with Yankees manager Joe Torre.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

IN OCTOBER, the New York Yankees offered manager Joe Torre a contract for 2008, providing for a base salary of $5 million (vs. $7 million the previous year) plus "incentives" of $1 million a pop should the Yankees win the American League Division Series, the AL Championship Series, and the World Series.

Concluding that he had been insulted and did not need financial "incentives" to motivate him to perform his duties, Torre rejected the offer.

This situation from the sports world resonates in the corporate governance realm. It demonstrates some of the ways in which the popular dogma of "alignment" stands on brittle glass.

Alignment proponents demand that a company's directors have their directors' fees and net worths tied directly into the company's share price; the board, they insist, must "eat its own cooking"--even though it should be obvious that numerous factors, having nothing to do with how smart or honest the board may be, can and do affect the stock price.

Through its Torre offer, Yankees' ownership in effect contended that a baseball manager's excellence and ability should be measured by whether or not the team wins in the postseason, and that, therefore, his compensation should be directly linked to such results.

I have for years written about alignment and endeavored to point out its many infirmities. The Torre situation is but another example of how alignment (whether tied into postseason baseball results or stock price levels) falls of its own illogical weight:

1. Not long ago, there was neither a Division nor a League Championship Series in Major League Baseball. There was only a 162-game season, directly after which the teams from each league with the best record met in the World Series. Playing in the Series did not depend on first surviving a three-of-five short series followed by a four-of-seven series, in each case against an opponent that had played inferiorly over the season as a whole.

   Which is a better indicator and measure of a manager's skill--(a) his success in managing throughout an entire season (with inevitable team and individual hitting and pitching slumps) or (b) whether or not his team wins three out of five games in one particular short series? In reflecting on this question, observe that even if the team's pitching ace has bad stuff and is shelled on three different days during the 162-game season, those three games represent less than 2 percent of the season; but if that same ace has bad stuff in just one...