Jeffrey Pfeffer's column in the July 2005 issue of Business 2.0 (p.64) is
titled "The Pay-for-Performance Fallacy."
Pfeffer's column opens with "It's infuriating when CEOs reap big bonuses for
lackluster results. " He closes it with "Pay and performance can be out of
whack for a while, but eventually CEOs who don't perform will see their
compensation fall in line. Sometimes all the way down to zero."
Between his opening and closing, Pfeffer asserts there is a weak link
between CEO pay and performance, he goes on to explain why and then says it
doesn't bother him and shouldn't bother us. Why? Because, sooner or later,
the non-performing CEO will get the ax. What Professor Pfeffer doesn't
mention is the huge severance package the axed CEO will receive, running
$16.5 million on average according to Money. Some, of course, are much
higher. There is a pay-for-performance fallacy in the column all right but
it's in Pfeffer's logic, not in unwarranted concerns about unwarranted CEO
compensation.
To make sure I wasn't simply spouting off with my remarks above, I did a
little digging via Google and turned up 17 well-known execs, mostly CEOs,
whose severance packages run from a low of $9.5 million to a whopping $140
million. Their grand total: $827 million. Guess what? The 2005 fiscal
year budget for the city of St Louis is only $791 million. Seventeen
people, most of whom got sacked, walked away with enough money to fund this
year's budget for a city with a population of 340,000 people.
Talk about income inequality!
Regards,
Fred Nickols
"Assistance at A Distance"
nickols@att.net
www.nickols.us
"Constructive Criticism is an Oxymoron"