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Home > Blogs > Leslie Kossoff > Executive Compensation: Fear, Scarcity and Wrong Measures

Executive Compensation: Fear, Scarcity and Wrong Measures

Executive Compensation | Fear, Scarcity and Wrong Measures Leslie Kossoff

Over a decade ago, I wrote an article entitled "Worth Every Penny" for a local Silicon Valley business publication. My position was that the entrepreneurs who were building their dreams into companies should be compensated for the work they were doing.

My reasons for making that particular case at the time were that:


  • The entrepreneurs were building a new industry
  • They bootstrapped for months and years before getting their funding
  • I had no idea that they were burning cash as stupidly as they were once they had it - nor that their investors were allowing them to do so.

This was the beginning of the executive compensation anger that is so rampant now. Frankly, had I known then exactly how insane the compensation system would become for executives in all industries, I'd never have written the article at all.

If we want we can go into the blah-blah-blah of:


  • The reactive VC/Angel investment model of the day that led everyone to jump on the bandwagon and get their bucks in first (which led, interestingly enough, to the need to legislate to protect stupid investments by dentists - or stupid dentists, you choose)
  • The fear that someone else would take over the market before there was - or would be - a market
  • How eyeballs were considered currency...

You know the rest.

In fact, as you look at the newest social media IPOs out there, in some ways we're seeing the same thing. Plus ça change...

But I digress.

Today, as the Governor of the Bank of England is calling for cuts in bankers' compensation, I listened to an interview with Ralph Silva, Director and Banking Analyst with SRN, talking about that subject. He said:

"The assumption is that the actual shareholders care. The truth is if you tell the shareholders how much these senior executives are getting paid they're probably going to want them to get paid more. Why? Because they want the best of the best and the shareholders simply don't have a problem with these huge salaries."

Yes, in fact, they do have a problem with them. Fund managers - in the form of shareholders - may not...but even they're getting a clue. Because, just as eyeballs were considered currency in the lead-up to the DotCom Bust, so, too, are the measures of executive "success" tied to completely wrong measures now.

What, you ask, are those measures? In too many cases, as long as the guy - or, in far fewer cases, woman - shows up, the money flows into their pockets in the form of cash, stock, options, perks....You name it.

The logic of this argument comes from the thought that there is a scarcity of talent to run these organizations. That, too, is wrong. In fact, too many executives currently in those positions make exactly the case for their own demise - because, clearly, the decisions they're making aren't good ones.

How do we know? Because the measures that underlie what is considered "success" in these organizations are flawed. Where there is no growth, there is no success. Where there is only short-term thinking, there is no future.

The problem is, by the time the shareholders Mr. Silva is talking about realize their mistake, the executives in charge will have moved onto greener pastures in their next jobs.

It's time to get a clue. Executive compensation is out of whack - but it's fixable. Change the measures and create accountability for those in their positions. At the same time, forget the fear and scarcity argument and look at the real talent pool that exists.

Very quickly and without too much difficulty, compensation and audit committees will find that there are a lot more good choices - at much more reasonable prices - than they think exist now.

Tags: accountability , audit committees , Bank of England , corporate governance , dotcom bubble , DotCom Bust , entrepreneurs , executive compensation , fair-value accounting , investment model , IPOs , Ralph Silva , silicon valley
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