Page 132 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

118 The Complete Guide to Executive Compensation

that no successful company has gone through the perils of the threshold stage without
taking a calculated risk on an innovative product. Few professional managers are successful
entrepreneurs, and few successful entrepreneurs are successful administrators. Participation
and sense of ownership are therefore essential to properly channel the work efforts of the
professional manager.
Establishing a perfect reward-for-accomplishment system is a virtual impossibility,
since we are dealing with imperfect measurements. Nonetheless, it is imperative to make
the system as good as it can possibly be. There aren’t so many talented, self-motivated
individuals with a strong need to excel that a company can afford to mishandle its
pay program.
The entire premise behind well-designed compensation programs is to modify executives’
behavior until it is considered optimal by the organization, and then to reinforce continuation
of that level of performance. Unless executives are properly compensated, the organization
will have a very difficult time in successfully attracting, motivating, and retaining top-quality
executives.
As might be expected, the five elements of compensation have attracted varying degrees
of executive interest over the years, due in part to the influence of the other stakeholders.
Table 4-3 shows their interest level by quarter century. The importance of these ratings is
relative rather than absolute. During the first quarter of the 20th century, interest was prima-
rily on salary and incentives, as the United States dominated the world’s industrial market
with the marvel of mass production. The next quarter century was one of more balance. It
was marked by the Great Depression of the 1930s and World War II. The following quarter
was again one of U.S. dominance, since much of the world’s industry was in rubble from the
war. However, Korea and then Vietnam brought industrial opportunities along with high
inflation. And the last quarter of the twentieth century was marked with high interest
in all forms except perks, which lost their tax effectiveness appeal. In the beginning of the
21st century, all forms of pay have high interest.

Incentives
Time Period Salary Benefits Perks Short Term Long Term

1900–1924 High Low Low High Moderate
1925–1949 Moderate Moderate Moderate Moderate Moderate
1950–1974 Moderate High High High High

1975–1999 High High Moderate High High
2000–Present High High High High High
Table 4-3. Executive interest in executive compensation

OTHER EMPLOYEES
In years past, employees paid little attention to CEO pay in their company. After all, the
CEO was responsible for keeping the company going and ensuring others had good-paying
jobs, both of which the CEOs did pretty well.