Civilization and Impulse Control: An Executive Compensation Package Analysis
Over the years, this view of civilization has stuck with me: Civilization is defined as impulse control. If this is so, how does outlandish executive compensation fit into civilization?
The poster illustration for uncivilized behavior, it seems, could be the greed of outrageously excessive executive compensation packages. Richard Fuld at Lehman Brothers, for example, made $484 million in 8 years as he ultimately drove his company out of existence.
There are many troublesome aspects to those outrageously excessive executive compensation packages. The biggest issue, in my opinion, is that those packages have the potential to break down our social fabric. It can rip at civilization. Anyone remember the French Revolution? Could lack of reasonable impulse control by those in power be tied to a long-term break down in social control?
How Civilization Is Tied to Executive Compensation Packages
Recently, a CEO visited me on a sales call. I had worked for one of his companies in my first HR job, and loved it. I deeply valued his approach to serving customers; it’s a gift that has stayed with me throughout my career.
We reminisced a bit, and he made this comment, “You know why our benefits were so good (in that company years ago)? They were so good because I bought the benefits that I wanted for me.” All of the employees benefited from his self-interest.
We were in the same boat, and the tide of his self-interest lifted all of us. He was proud of that, and rightfully so. I call that enlightened self-interest. Maybe that is a concept that Ayn Rand could support as well.
And it was relatively more common 30-60 years ago, as executive compensation salary data shows. You’ve seen the studies that show how the delta between executive compensation and that of regular employees has grown dramatically over that period.
A Look at Executive Compensation Packages in Today’s Environment
So a growing number of executives are no longer in the same boat with average employees. At the expense, indirectly, of not just the average employee but even the average citizen.
Examples of what happens when executives are, and aren’t, in the same boat? Here are a few:
- Didn’t pensions begin to melt away when lucrative stock options became so prevalent that an increasing number of corporate executives could retire without need of a pension?
- Aren’t 401(k) matches still common because corporate executives can’t fully participate in a 401(k) unless the average employee does? What do you think would happen to 401(k) matches if non-discrimination rules were ever repealed?
- Have you had the experience of a CEO with a family proposing great family medical coverage because “it’s only right”? Meanwhile, a single CEO, who doesn’t want a family, thinks that family coverage is unfair and provides more of a benefit to one group because of their expensive lifestyle choices?
How a Healthy Impulse Can Manage Executive Compensation Trends
The key point to me is that executive greed directly affects the tides that lift, or sink, all our boats. Civilization needs executive compensation packages to continue to be in some relationship with that of average employee compensation packages.
We all need to be in the same boat, even if some are at distant ends from one another.
Spread the practice of outlandish, incredibly excessive executive compensation – paying $484 million over 8 years to failed leaders like Richard Fuld – and I think we’re in deep trouble sometime within 10 to 15 years.
That’s my current thinking. Please, share your examples and critiques. This seems like a crucial topic with far ranging consequences, and one in which our conversations need to expand to include the significant impact of executive compensation decisions.
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