May 29, 2009
Blinder: Welcome To the Compensation Debate
– Broc Romanek, CompensationStandards.com
If you haven’t heard, The Corporate Library has launched a new blog. They’ve launched them in the past but they didn’t “take.” Based on the frequency of entries for this one already, I think this one will have staying power. Below is an entry from Nell Minow worth reading:
In yesterday’s Wall Street Journal, Princeton economist Alan Blinder wakes up to the fact that the problem with excessive compensation is not the absolute levels but the incentive structure. Incredibly, he says that “the ruckus has been over the generous levels of compensation, or the fact that bonuses were paid at all, not over the dysfunctional incentives that inhere in the way many compensation plans are structured.”
I’m not sure which ruckus he has been referring to as pretty much everyone commenting on this subject, from the institutional investors to the financial press and our own testimony and reports (see especially the testimonies dated October 6 and 7, 2008 in our online store), has been focused on problems like rewarding executives based on the number or size of transactions rather than their quality. We welcome Blinder to the debate but wish he had come up with a stronger proposal than suggesting boards do better. Without some incentives like a better pay-performance link for directors and disincentives like the risk of removal by shareholders, we are unlikely to see much improvement and a homus economicus like Blinder should know that.