Prairie Home Companion's Garrison Keillor joked recently that the 90% of
corrupt CEOs are making it difficult for the 10% of honest ones.
Graef "Bud" Crystal, the current grandfather of compensation consulting,
reports the latest fall from grace of a CEO.
- "Computer Associates International Inc. Chief Executive Officer Sanjay
Kumar resigned and the company has had a flurry of firings and guilty
pleas in connection with a federal investigation of securities fraud,
longtime shareholders can look back --- on a company with a poorly
designed executive compensation plan." -- April 21 (Bloomberg)
- Crystal provides a running commentary on the need for sound
compensation planning for executives who run enterprises of all sizes.
Following Crystal's (and other's) leads to holding boards to a higher
level of accountability, companies like GE have gone out of their way to tie
Jeff Immelt's, current GE CEO, pay to performance. Use of performance share
units at GE, and other companies, has created greater importance in real
"added value" of every dollar assigned to Immelt's (the CEO's) long-term
Level 3 Communications Inc. a company born and formed by Peter Kiewit Sons',
Inc. of Omaha, implemented and continues a very unique long-term incentive
plan during the .com craze in the 90's.
- Tied to an average of the price of shares of high performing public
companies, the Level 3 Communications, Inc. incentive plan is triggered for a targeted
payout only if its stock price betters the average.
- The cost of the Level 3 plan is expensed, thus not enjoying positives
of fixed accounting.
- This assures shareholders that the value associates of Level 3 add to
the company over time has to be greater than the peer group of comparators
AND the embedded cost of the plan.
- That is the level of assurance that shareholders in public companies
and stake holders in private companies want from senior management.
Executive level performance must be rewarded if it clearly equates to
exceptional short term and sustaining long-term performance of the company.
- Plans in start-up enterprises must reward for cash build-up and market
- Plans in renewing companies must reward for profitable use of already
invested tangible and intangible capital.
- Plans in sustaining profitable companies must reward for efficient use
of capital and resourceful management of expenses.
These highlights of executive compensation plan guidelines parallel the
due diligence checklists of public and private investors.
This parallel is not capricious, it is essential that the investor mentality
be part of planning for executive compensation.
At the same time, board members must insist that executive compensation
plans attract new investors and protect current investors.
- Such protection comes from smart planning and the use of proven
As well, executive compensation plans must fairly reward and openly
retain exceptional executive talent.
The HARLON GROUP applies articulated ethics in each discussion on
executive compensation planning. The foundation for these ethics is found
in business successes guided by traditional conservative teachings and
- This balance must be reached with each new plan and with each revision
to existing plans.
Our commitment to companies is that we will insist that the board of
directors or advisors to management drive the process of executive