Hindsight is 20/20


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expert perspective telescopeExpert Perspective from Grahall’s OmniMedia Editorial Board

The opinion article titled “The New Wage Controls: One more sign that the levelers are now in charge” published in the Wall Street Journal on June 15 takes aim at Geithner’s proposals for curbing “excessive” executive compensation practice, disparaging the recommendation that “compensation plans should properly measure and reward performance” and slamming proposals for extending time horizons and increasing transparency and accountability using say on pay.  Well perhaps whoever wrote that opinion for WSJ’s Review & Outlook just got out of bed on the wrong side that June 15th morning.

So lets consider these proposals and their practicality from a less hostile perspective. Certainly the author’s argument that government contributed to creating the problem in the first place can’t be ignored.  But we have lived for many years now (maybe 200 or so?) in a US where “the government giveth and then the government taketh away”.  It is a balancing act that recognizes that hindsight is far more accurate than foretelling the future.  What seems like a pretty sound idea today can be less perfect in a new or changed economic environment.  And whether the economic meltdown started as supply side or a demand side economics isn’t really the issue.  (Read Grahall’s Expert Opinion on this).  The real issue is what do we do with perfect hindsight and limited foresight to make things better?

As Total Rewards consultants with many years of experience, we must take exception with the author’s comment that “… some of Mr. Geithner’s statement of principles on pay are little more than the bromides that every compensation consultant has loaded in his PC for a corporate business pitch.”  Grahall’s “pitch” – in case the author is interested – is that the goal of executive total reward strategy is to reward both individual and organizational performance in such a way that the company achieves its potential and that management and the stakeholders each profit reasonably from the company’s success.  The best programs are specifically tailored to a company’s business and people strategies.   (Consultants handing clients “bromides” is a serious issue.  Any client who thinks that is happening should get another consultant!)

The author states that: “some financial instruments having lifespans measured in decades”.  Yes, that’s true, of course.  But we do not agree that “there are limits to [a long time horizon’s] real-world application”.  One of Grahall’s founding principles is to approach total rewards programs by taking the ”long view”: five, seven, even ten years, with some incentives career based for certain executives.  Our approach to this called Performance Based Weath Accumulation and Retirement Plans (gPB-WARP)  and is outlined in Chapter 13 of our recently published book entitled “Effective Executive Compensation”.

Finally, regarding transparency, accountability and say on pay, it is difficult to see how a non-binding vote by shareholders might encourage better pay practices, but our belief is that anything that helps to get the individual shareholder back into the “boardroom power coalition” can’t be all bad, and that say on pay might be a productive first step. 

Email Grahall’s OmniMedia Editor at edie.kingston@grahall.com.


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