Tuesday, March 27, 2012

CEO salaries should be related to performance, not Wall Street

It makes sense that the biggest paychecks would go to those who make the biggest decisions which impact the most people, especially when the decisions impact the long-term competitive position and viability of the company.

It does not make sense that those same decision-makers are rewarded gigantic raises ten times the regular employees' raises when the decisions result in 25% greater loss from one year to the next.

If an employee's performance yielded similar results, she would be fired. It does not make sense that CEOs with poor results get rewarded outlandish pay increases instead.

The latest was published in the Kansas City Star today with this headline: Sprint’s Hesse gets 31 percent pay boost as Overland Park carrier’s losses continue (article)

The article says Hesse's decisions led to a 25% bigger loss this year than last, and his decisions are not helping turn the company around. However, the stock price has gained 22% this year. It trades below $3. It shouldn't take much for it to get a 22% increase.

Is Hesse's raise tied to the stock price or to the company's overall performance?

It appears this is another example in which the CEO's performance is not measured or rewarded in the same manner as others'.

Why not? Furthermore, why would CEOs whose performance at one company fails be highly sought after at other companies? That makes no sense but it a topic for a different day.

Sprint is the largest private employer in Kansas City, so its CEO getting a significant raise makes news around town. So many people in the area have worked for Sprint, it almost always comes up in conversation. Sprint has laid off so many people over the years, they're one of the biggest causes of the regions growing entrepreneurs. They also are well known for their culture of mediocrity. In fact, the culture of mediocrity is so commonly known, some employers will not hire former Sprint employees because of it.

When the CEO's decisions have led to greater losses year after year, and no end is in sight, it is unreasonable to reward him. It is certainly unreasonable to reward him with millions of dollars while his fellow employees get no raises, layoffs, and bad reputations. Sure, Hesse won't have to work again, but if he wants to, he will land another highly lucrative gig. His Sprint coworkers, however, have difficulty landing great jobs in Kansas City because of the culture he fosters.

That is wrong and Hesse and his peers should have the integrity to hold themselves accountable for it.

Apparently, the only people who will hire employees with reputations of mediocrity and poor performance are Boards of Directors. If the CEOs and Boards won't hold themselves to a high standard of excellent performance, the employees and customers need to.

If Sprint were to cultivate a culture of integrity and excellence, Hesse could actually earn the salary and bonuses with integrity.

It is time for CEO pay to be aligned with company performance as it relates to all of its stakeholders, not just its stockholders. It is time for CEO pay to be based on results instead of short-term stock price fluctuations. It is time for CEO pay to be earned with integrity.

On a personal note...
I began my career with a division of Sprint, the publishing division. We published the phone directories, and, we loved it! The company made money, hired great people, grew at a reasonable pace, and fostered a culture of excellence. Many of us remain connected today, with annual reunions in the summer and around the holidays. I share that in the interest of full disclosure and also to show that not all Sprint is bad. Well, Sprint sold that division a while ago when it needed cash. But, it was great until then. I am a former employee who loved working for the division I was with, current customer who has had superb service, and stockholder who is unimpressed with a 22% increase.

What do you think?
Are you ready for CEOs' pay to be tied to performance?

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