Robert Heller of www.thinkingmanagers.com believes that scandalous rewards are working against the performance of top managers.
High-profile managers receiving huge salaries – it's a hot topic in company management. Performance-related bonuses and massive stock options are also received by these super bosses, as well as enormous pensions and other perks.
All these rewards are frequently linked to performance.
Stock option costs can't be hidden any longer but it is doubtful shareholders would protest about packages unless the management's performance was below adequate.
That might sound fair but what precisely is 'adequate performance'? A share price that outperforms the sector is usually used in evidence, but the sector might be meaningless as a concept – outperforming unspectacular competitors with mediocre figures is hardly an achievement. And the share price is hardly under the management's control.
The share price is simply an unarguable figure for a particular moment in time – that is its one virtue.
The basic principle of incentives is that the more you put in, the more you take out. Incentive schemes that are effective work by changing behaviour in a way that is aligned with the needs of the organisation.
But behaviour can also be changed in the wrong way by incentive schemes. For instance, you can have sales incentives that relate to turnover rather than profit, which result in a lot of unprofitable business.
The present need is for leadership rather than management. It is crucial in an organisation reaching optimum effectiveness. But, contrary to the belief of many pundits, effectiveness isn't necessarily the ultimate goal of the top manager. Maximisation is prioritised – maximisation of personal reward.
This shift in emphasis isn't new. CEOs and their cohorts have been rewarding themselves with increasing sums of money for years.
The downside of all this is becoming clear. A recent issue of Fortune magazine featured a list of ten CEOs facing 'Herculean' challenges.
The list is distinguished: Citigroup, Coca-Cola, Gap, Merck, Microsoft, Morgan Stanley, Nike, Sony, Verizon and Wal-Mart.
The majority of the CEOs involved have inherited problems from predecessors who carried their massive rewards into a wealthy retirement.
The more misuse of corporate funds for personal wealth is accepted, the more the long-term health of the business is at risk, as successful long-term company management is ignored in favour of short-term gain.
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