Page 124 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

110 The Complete Guide to Executive Compensation

alternative. Not to vary compensation in relation to an objective assessment of performance
is de facto to reward mediocrity and to penalize the better-performing executive. Thus, either
managers work hard to use what is available to make pay differentiations, or they must accept
pay for seniority or on some other basis. In either event, they should stop blaming the
system when in fact the system provides the opportunity, but they lack the ability.
Incentives work best where the individual has a clearly defined, measurable objective to
accomplish—either an objective with few external impacting factors or an objective with
factors that can be easily measured. The company must be careful to ensure that incentive
plans are not so attractive that they encourage individuals to violate the corporation’s standards
of business conduct, or worse, commit illegal acts. Not only must falsifying records to show
increased production or sales, or reduced expense, be formally forbidden, but also necessary
control procedures must be adopted to officially enforce the rules. In addition, plans must be
structured to serve the financial interests of the shareholders, not simply the well-being of the
professional manager; otherwise, beneficial mergers or acquisitions might be thwarted.
A logical way to motivate the professional manager to take more personal interest in the
success and well-being of the company is to make that individual a part owner. This has been
the main rationale behind the use of stock options and stock awards.
Importance of Pay. Pay is, admittedly, not of equal importance to all executives. As indi-
cated earlier, some have achieved a level that is satisfactory in meeting financial needs. For
others, the need is greater, either for direct use of pay or simply as recognition of their
importance.
The importance of pay in altering or reinforcing performance is strongly influenced by
several factors, including background and current economic status. For those who grew up
in an affluent environment and currently have sufficient money, pay has little impact.
Conversely, for someone who did not grow up with money and still doesn’t have it, but does
have high economic desires, pay is very important.
Some have questioned how much the individual is motivated by greed rather than
simply need. Envy of the pay level of others is often a factor, but dissatisfaction is often based
on perception rather than facts. Since most people probably overestimate the pay of others
and also overestimate their own level of contribution, it is not surprising that many are
unhappy with their pay programs, regardless of how lucrative. Therefore, a competitive pay
program should “toot its own horn,” emphasizing how it compares to what other organiza-
tions are paying for comparable performance and responsibility.

Executive Qualities
What personal qualities are likely to make an executive effective? Fortunately, there is no one
model that can be used to clone replacements. Variances in positions, companies, industries,
and stage of the market cycle demand different profiles. Nonetheless, there are certain
qualities that seem to exist to some extent in many situations.
The Need to Lead. Few executives can point to any outcomes attributable solely to their
own efforts. Their success lies in being able to get others to not only work together but to
create a synergy resulting in an outcome far greater than the sum of individual results. To
involve others requires strong communication skills, encouraging input from others, and
sharing information. In seeking needed information, leaders recognize that not all will be
available when needed and that they must deal with ambiguity.