Yesterday’s New York Times reported that Vikram Pandit and Winfried Bischoff, Citigroup’s top executives, would forgo their bonuses for 2008. The Times wrote:
“The harsh realities of 2008, primarily our earnings results, mean that our bonus pool is dramatically lower than last year,” Mr. Pandit wrote about a year in which the bank has so far announced more than $10 billion in losses. “The most senior leaders should be affected the most.”
The paper also pointed out that Citigroup has taken in $45 billion in capital from the taxpayers’ bailout funds. If I had to bet, the only thing that these Citigroup executives liked about this story was it pointed out that their peers at Bank of America and Wells Fargo were still expected to receive bonuses despite taking the taxpayers’ money.
The truth is executives hate any story about their compensation. They resent that their salary and benefits are detailed for the public’s compensation in SEC reports. Well you know what? Tough.
Executive compensation is out of control in the U.S. For years most investors have turned a blind eye to these packages as long as the companies they were investing in were making money. But now that taxpayers are being forced to bailout the banks, insurance companies and auto companies, they are taking a closer look at executive pay and the media is following the relative SEC filings more closely.
Remember the pathetic spectacle of the CEOs from GM, Ford and Chrysler being shamed flying their corporate jets to Washington, D.C. for their to beg for money? Could these CEOs have been more out of touch? (By the way, returning to Capitol Hill via their product made me even angrier. All they needed to do was fly economy like everyone else.)
Personally, I’ve had enough.
If you have the unfortunate task of working for a publicly traded company which offers executives the kinds of executive compensation packages which make news, there’s not a lot you can do to minimize the damage to your company’s reputation. But I offer these tips:
- Make sure that your Corporate Secretary alerts you to the filings before they occur. Get everyone’s buy in on how you will answer questions from media and investors well in advance of your SEC report being filed. Trust me on this, no one likes surprises and getting executive and legal approval will take longer than it does usually.
- Have your HR or Investor relations teams provide you the details of comparable packages with your peer companies. Providing these details to media is helpful in providing some perspective. I’m also a big believer in pointing out that the only reason the packages are what they are is that this is what the market for talent demands. It’s kind of like the salaries of professional athletes — are they really worth all that? — no, but they can command these excessive salaries because the market pays it.
- Be prepared to relate your executives’ packages to the financial performance of your company. Whether or not your executives think this is fair is irrelevent. Increasingly, that’s what media do when reporting these stories. You’d better be prepared to do so.
- Tell your own employees first. I’m continually amazed that publically traded companies try to downplay this aspect of their business. The truth is, they do so because these packages are excessive. My advice is that it’s better for your workforce to hear your story from you before they read about it in the newspaper. In most cases, you can provide context that won’t be included in news coverage.
- Set appropriate expectations with your executives for the resulting news coverage. While it’s human nature for the bosses to not like having this detail of their personal life exposed for all to see, it’s comes with the territory. They need to be prepared for these stories to be negative. (Have you ever seen a story about executive compensation where the boss comes off smelling like a rose?)
- And finally, don’t let anyone give you any grief over the negative coverage that will inevitably result. One boss I had at another company I used to work with told me that when her CEO complained about a story detailing his compensation, she told him there was only one way to avoid it in the future: “Don’t take the money.” That made him laugh and relax. (Plus he was more than ashamed to be caught complaining to someone who made a fraction of what he made at the time.)
And for the critics of executive compensation, recognize that the only way this will change is if investors start holding corporate boards accountable. I’m not holding my breath.