As we approach the end of the 2015 peak proxy season, the annual parade of articles and studies of executive compensation has begun. To no one’s surprise (at least not mine), the numbers keep going up, and some investors and media types are looking for someone to blame. Companies and their boards or compensation committees are obvious targets (in some cases, quite justifiably), and some have criticized investors themselves, who continue to overwhelmingly support say-on-pay proposals whether or not their support seems warranted.
If you accept that one symptom of insanity is to repeat the same behaviors over and over again while expecting different results, then it appears we’re in the midst of an epidemic of compensation craziness. Why did anyone seriously think that say-on-pay votes would cause executive compensation to decrease? (Parenthetically, there are people who think that disclosure of CEO-to-median employee pay ratios will lead to a reduction in executive pay. Talk about crazy.) I learned a long time ago – from the mouth of Pearl Meyer herself – that every attempt to rein in executive pay by legislation, regulation or disclosure (i.e., shame) has failed. Why did anyone think this would be different? In other words, limiting executive compensation is like what Mark Twain said (or not) about the weather – everybody talks about it, but nobody does anything about it. At least nothing that works.
Well, maybe not. It seems that Dan Price, the CEO of a company called Gravity Payments in Seattle, who’s been making over “a million-dollar salary,” decided this year that he would do something about it. Specifically, he cut his compensation and decided that everyone in his company would make at least $75,000 per year. You’d think that he’d be given laurel wreaths or maybe a ticker-tape parade, at least in some circles of compensation-land, but you’d be wrong. There have been articles (i.e., screeds) written by some in the industry that he’s going about it all wrong, that it’s not a solution that can be applied on a broad base, and so on. He’s even been referred to as crazy.
Maybe those criticisms are valid, at least partially so. However, unlike the rest of the denizens of compensation-land, Mr. Price is actually doing something about it, and I see no reason why the same approach can’t be applied elsewhere, in part if not in whole. Why can’t a CEO who is making millions of dollars – and who, candidly, isn’t going to go anywhere if his/her compensation falls below the 50th percentile of peer company CEOs – just say yes, as in “yes, I’m making enough and I really don’t need any more to motivate me or retain me.” Can’t the compensation wonks work out the details so that, among other things, the CEO in question doesn’t suffer adverse consequences (such as imputed income) by foregoing some money and so that others in the company can get a reasonable increase?
If what we’re doing isn’t working (and is therefore crazy), why not do something crazy and see if it works?