I Criticized by the public and taken to task by Washington for overpaying CEOs, companies should push incentive-base pay down in the ranks But performance pay should be used to win commitment and boost productivity, not just to quiet critics.
Given the sluggish performance of some corporations today, it follows that a number of CEOs are overpaid. That's why the Clinton Administration has pushed to strengthen the link between executive pay and performance. Few chief executives would dispute that this is a necessary and positive development. It builds confidence in business and restores our credibility with the public, our shareholders, and even our own organizations.
Fortunately, as noted by Personnel Corporation of America's David R. Meredith in the annual CE compensation survey (see this edition), an increasing number of American companies have come to rely on incentive-based arrangements. But I feel CEOs should push pay reform beyond the executive suite. At COMSAT Corp., for example, we use incentive-based compensation to reshape corporate culture and to energize all of our employees.
In doing so, we've put everyone on common ground. "There's a feeling that we're all standing at the same workbench," one of my staffers said. But besides making good business sense, injecting incentive, risk, and reward into compensation also makes a bold statement about vision and values.
According to USA Today, the average CEO's pay is 156 times as much as a factory worker's compensation. According to Business Week, average compensation for an executive has increased 56 percent in the past year alone. With statistics like these, no wonder employees, politicians, and stockholders are grumbling.
Americans have lost faith in their business, educational, and government institutions partly because these institutions lack accountability for their performance. Putting compensation at risk restores accountability. Everyone has a stake if something goes wrong.
At COMSAT, much of our motivation for compensation reform comes from our board of directors, under the chairmanship of former Defense Secretary Melvin R. Laird. I'm the only insider on our board. I don't serve on the nominating committee, and there are no so-called interlocks on the nominating or compensation committee. The board's independent perspective has been one of our most variable We've set the tone for compensation from the top down. After considering my recommendations and the suggestions of...