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Article - Executive Pay: Time for CEOs to Take a Stand
In the article Executive
Pay: Time for CEOs to Take a Stand written by former chairman and chief
executive officer of Procter & Gamble A.G. Lafley, the author suggests that
executive pay for CEOs needs to be altered from how they currently are. As a former CEO himself, Lafley has an
insider prospective, having received executive pay himself when he was the headman
at Procter & Gamble. He suggests that
many companies should reevaluate how they compensate the CEO’s pay. Lafley believes that CEOs should be
compensated with equity grants or company stock, because this would better
align the CEO’s interest with the long-term interest of the company.
Lafley urges companies to compensate CEOs primarily with
equity. He believes that by doing so,
the CEO will have greater incentive to create value for the company in the
short, medium, and long run. Lafley says
that it is for this reason that he believes that “equity should make up the lion’s share of a CEO’s
retirement package.”
The article also suggests that CEOs be forced to hold the
majority of their equity grants into retirement. According to the article, this would restore
integrity in equity grants. Also, by
doing so, this would set a good example for other top executives. However, since many CEOs already hold a large
amount of equity, Lafley suggest that other employees should be given the
opportunity to invest in the company.
This would lead to more loyal employees and bring a sense of equality
among the company’s employees.
Another simply tweak to CEO pay that the author suggests is
to eliminate all post employment provisions in the CEO’s compensation that is
not pegged to performance. These
provisions are more like safety nets. A
CEO should be rewarded in accordance to how the company performs. After all, he is the leader of the company
and it is his job to run the company successfully. There is no need to reward a CEO who does not
perform his job adequately. Further, the
author suggests that executive compensation should be analyzed fully, allowing
for a full picture that helps determine whether or not CEO’s compensation is
deserved.
As a former CEO, Lafley’s suggestions should be taken very
seriously. If companies listen to
Lafley’s advice, they will likely see increased performance from their
CEO. Additionally, the public perception
of the company will increase as well.
Companies should listen to Lafley’s suggestions and consider making
changes to their CEO’s compensation plan.
Article Link:
Work Cited:
Lafley, A. G. "Executive Pay: Time
For Ceos To Take A Stand." Harvard Business
Review
88.5 (2010): 40. Business Source Complete. Web. 8 July 2012.
I totally agree with this form of compensation, and to take it a step further, ensuring that the level of equity received is tied the the financial impact from the CEO on the organization so as not to provide large ownership interests to non-performing leaders.
ReplyDeleteI think having CEO's compensated with stock is a great idea. A lot of these CEO's nowadays are too focused on the short term goals and how to get their pockets fatter but if this type of compensation were in place then just maybe they would start looking at the bigger picture and focus more on the future company seeing as how it will help them out in the long run as well.
ReplyDeleteI agree with this article, the CEO would be more incline to make decisions in the best interest of the company not just his own. Companies should take Lafley idea into consideration. After all he has worked as a CEO and would know what would work best.
ReplyDeleteI agree as well. All of my post have been about lavish CEO compensation. CEO pay should correlate a companies performance.
ReplyDelete