How Performance-Based Compensation Is Killing America.

Sometime in the late 70s, I met with a client to discuss his marketing plans for the year.  When I asked about the company’s long-term plans, the client said that his Fortune 500 Company no longer does long-term planning.  When the client noticed my obvious surprise, he told me that things were changing too quickly.  He went on to explain that the company’s CEO is now compensated with a base salary and performance-based stock options.  The higher the stock price, the more the CEO would be paid.

Now more than 30 years later, the effects of performance-based compensation are obvious.

CEOs now base their companies’ success on the share price of securities.  Not on brand value, number of offices and employees, company holdings and investments, or sales.  As a result, many CEOs are now willing to mortgage the future of their companies in order to maximize share price.  Of course, one way to accomplish their short-sighted goal is to increase productivity, aka employee layoffs.  Another popular method is to cut or eliminate employee benefits.  Yet another method is to export jobs to countries that have a plentiful supply of low-cost workers, no labor unions and few regulations.

There is no loyalty to long-time employees, vendors, communities, the nation or the environment.  The only thing that matters is the stock value and how that translates into executive compensation.  The average tenure of a CEO with any one company is slightly more than 8 years.  As a result, they often don’t care about what happens to that company 10, 20 or 30 years from now as long as they have time to cash in their stock.  If the company is aquired or merged, that only means the stock price is likely to go up.

If we want to take back our country from these greedy few, we have to change the way performance is measured.  The price of a share of stock is not enough.  We must also measure the value of corporations to our nation – the number of jobs provided, impact on our environment, contributions to communities, value of natural resources consumed, and taxes paid.

Until that happens, you will continue to see CEOs lead our nation in a race to the bottom.