Expert Perspective by Grahall’s OmniMedia Editorial Board
We have been perusing the letters submitted to the SEC relating to the proxy disclosure requirements and came across one from the Ethisphere Institute . According to the authors, Alexander F. Brigham, Stefan Linssen and Stephen Martin, the Ethisphere Institute is “a leading research and measurement institution in the field of examining correlations between business ethics and corporate performance.” Their letter makes some compelling arguments for “steps to enhance disclosure around ethics, compliance and integrity [that] will be of service to the investing public and reflect an increasing trend and interest in the business community….” And they note that “…emphasizing ethics in business is a fundamental good practice and benefits companies and the investing public alike.”
Our Grahall Editorial Board recently discussed the Ethisphere letter and the concept of ethics and ethical behavior in terms of compensation decisions.
Grahall firmly believes that executive rewards strategies – and the philosophies behind them – must reflect the organization’s vision, mission and values (VMV). These edicts provide significant directional guidance for decision makers in the organization when the decisions get tough. We also believe that good VMV statements – assuming that executives buy into them – promote good decisions. Especially important are the values that are integral to a company. These are the deeply held beliefs that that should be demonstrated through day to day behaviors of every employee at every level of the organization. They are, quite simply, an open proclamation of how an organization expects everyone to behave. These are, in fact, the ethics of the company.
Grahall’s Robert Cirkiel puts it this way: “The trick is a VMV that integrates values and mission into the path to success. ‘Follow the VMV and we succeed – don’t follow them and we fail.’ Back this up with action and accountability. Reinforce them continually. Too many VMVs are currently a joke. How many times have you been at a meeting staring at the mission statement on a wall, none of which is being adhered to in the meeting?”
Executives – the leaders of the company – in particular, must be held accountable to uphold the values of the company. They set the stage for all employees to understand that these are not just words on a plaque or a web site but rather behaviors that are expected to be upheld. And it is equally important that the compensation strategy for executives is consistent with and supports these statements.
So how do Boards of Directors and their advisors help to support the company’s ethical behaviors through its compensation structure? It’s simple really – dust off those VMV statements. Make it an important part of the compensation process to review, renew and refresh the values statements. Ensure that compensation rewards activities are consistent with these statements and discourage behaviors that are inconsistent. Make this VMV review part of every performance review and every compensation decision.
Read more on how Grahall incorporates Vision, Mission and Values statements into Total Rewards Strategies in the book “Effective Executive Compensation” by Grahall’s Michael Graham.
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