Compensation

Leadership: Broken Promises

I've been on a tear lately. I admit it. And my poor, hapless customers have been the recipients.

I've been holding them to their promises.

When I was a little girl, I learned from my father - an entrepreneur in his own right - that your word was your bond. That you didn't say anything that you didn't fully intend to deliver on.  That a handshake was as good as a contract - better, in fact, because a handshake was you putting your integrity on the line.

You kept your promises.

If you didn't you were a liar. Sometimes a cheat. Always someone not to be altogether trusted.

Not now and, possibly, not going forward.

That's why I've been on a tear. It bothers me that:

  • Executives say things to their employees that, in their heads, they think they're going to do - but, in reality, know that they won't.
  • Customers say to their suppliers that they're doing a deal - and then renege on it, whether in whole or in part or in any way at all.
  • Compensation Committees on Boards promise shareholders that they'll ensure that CEOs are fairly paid for their accomplishments - and then give the CEOs far more than they deserve.

Most of all, it bothers me that those on the receiving end - whether employees, suppliers or shareholders - feel that they can't do anything about the situation.

You're wrong if you feel that way. And you're wrong if you don't do something about it.

After all, in your personal life...

When you promise that you're going to do something - or even that you'll do your best - you keep those promises, don't you? And...

...when someone gives a promise to you, you expect them to keep it, don't you?

This is no different.

Because when someone breaks a promise to you in your personal life, you question whether you want to have them as part of your life any longer. From friends to your local dry cleaner, it's the same thing. Promises made and broken lead to decisions that end friendships and ensure you'll find other providers of services that you can trust.

So, if you're making promises that you know you can't or won't keep - stop it.

If something has changed, let the person on the receiving end know. Chances are, they'll understand.

If you're on the receiving end of promises that are consistently broken, go on a tear. Hold the person who's making those promises to their word - even if it's just by reminding them that they said what they did.

It's time for honesty and integrity to come back into vogue. It's time for everyone to keep their promises.

Why Failed Executives Always Get Another Job

Here's a pop quiz for you:

What makes these the same?
If your answer was: "The CEO is a failure but there were no consequences," you're correct. If you added: "Even worse, they keep getting rewarded and being asked to take on new positions," you get extra credit - both for the "even worse" and for the answer, itself.

And that's the one of the biggest problems with big business today. There is no real scarcity of talent available at the senior level - but you would never know it based on the business pages. Because these failed and failing executives keep getting the jobs - even as their decisions negatively impact the employees of and investors in the companies they're 'leading.'

Worse yet, a lot of those investors are institutional pension funds - which means that you can have worked your whole life and expect a certain level of retirement remuneration, only to find out that the fund has been hit so badly the money just isn't there anymore.

So where does this problem come from? What creates the illusion of scarcity?

There are two aspects to this problem. The first is a "better the devil you know" scenario. The other is institutionalized, intentional and profit-driven.

In both cases, it's coming from the executive search firms. They're creating and perpetuating a perception of scarcity with their "recycled executives" policy.

For them it's a highly profitable, cheap and cheerful way of doing business. For industry, it's a killer. Here's how it works:

You get a call from a recruiter. You've either worked with their firm before or you've been recommended by someone who has. They have a job prospect that might be of interest. In fact, according to them, it's just perfect for you.

You get the job. (Or one of the other candidates does. It doesn't really matter because they're all being paraded in by the same firm.)

Now it's time to negotiate salary and broader compensation. Stock options, anyone? Bonuses? Perqs? This is the time to ask - and get.

You, of course, want the highest compensation package possible. The recruiter wants exactly the same outcome. That's because, in the majority of recruitment pay models, the search firm is paid - at least in part - based on a percentage of your annual salary and sometimes part of your broader package. So the more you're being remunerated in every form, the better.

Some time goes by - maybe a year, but no longer than two. The recruiter has been in touch periodically - to say hello, ask how things are going, maybe get a recommendation from you for another position that isn't right for you, but you just may know the right person….

But now, at least according to the recruiter, it's time to move you on to your next position - and they've got the perfect fit. It's you all over.

And it begins again. You're theirs now. Part of their executive recycling program.

Wait, you say. What about all those resumes I've submitted to the search firms' websites? Sorry. The sad fact is, the recruiters neither had to nor bothered to look. They just churned - even if you would have been the better pick.

And so we keep seeing the same faces. Over and over. With the same results.

Maybe it's time to adapt the financial services disclaimer, "Past performance does not guarantee future results" to one specifically for executive search firms who put forward candidates with histories of failure. Something like:
"Past performance is your best guide to future results - so if you want to pay someone tons to lose your and the company's shirt, here's your guy."
[This article appeared on Technorati.]

Executive Compensation: How Fear, Scarcity and the Wrong Measures Drive the System

Over a decade ago, I wrote an article entitled, "Worth Every Penny" for a local Silicon Valley business publication. My position was that the entrepreneurs who were building their dreams into companies should be compensated for the work they were doing.

My reasons for making that particular case at the time were that:
  • The entrepreneurs were building a new industry
  • They bootstrapped in for months and years before getting their funding
  • I had no idea that they were burning cash as stupidly as they were once they had it - nor that their investors were allowing them to do so.
This was the beginning of the executive compensation anger that is so rampant now.  Frankly, had I known then exactly how insane the compensation system would become for executives in all industries, I'd never have written the article at all.

If we want we can go into the blah-blah-blah of:
  • The reactive VC/Angel investment model of the day that led everyone to jump on the bandwagon and get their bucks in first (which led, interestingly enough, to the need to legislate to protect stupid investments by dentists - or stupid dentists, you choose)
  • The fear that someone else would take over the market before there was - or would be - a market
  • How eyeballs were considered currency...
You know the rest.

In fact, as you look at the newest social media IPOs out there, in some ways we're seeing the same thing.  Plus ça change...

But I digress.

Today, as the Governor of the Bank of England is calling for cuts in bankers' compensation, I listened to an interview with Ralph Silva, Director and Banking Analyst with SRN, talking about that subject.  He said:
"The assumption is that the actual shareholders care. The truth is if you tell the shareholders how much these senior executives are getting paid they're probably going to want them to get paid more. Why? Because they want the best of the best and the shareholders simply don't have a problem with these huge salaries."
Yes, in fact, they do have a problem with them.  Fund managers - in the form of shareholders - may not...but even they're getting a clue.  Because, just as eyeballs were considered currency in the lead-up to the DotCom Bust, so, too, are the measures of executive "success" tied to completely wrong measures now.

What, you ask, are those measures?  In too many cases, as long as the guy - or, in far fewer cases, woman - shows up, the money flows into their pockets in the form of cash, stock, options, perks....You name it.

The logic of this argument comes from the thought that there is a scarcity of talent to run these organizations.  That, too, is wrong.  In fact, too many executives currently in those positions make exactly the case for their own demise - because, clearly, the decisions they're making aren't good ones.

How do we know?  Because the measures that underlie what is considered "success" in these organizations are flawed.  Where there is no growth, there is no success.  Where there is only short-term thinking, there is no future.

The problem is, by the time the shareholders Mr. Silva is talking about realize their mistake, the executives in charge will have moved onto greener pastures in their next jobs.

It's time to get a clue.  Executive compensation is out of whack - but it's fixable.  Change the measures and create accountability for those in their positions.  At the same time, forget the fear and scarcity argument and look at the real talent pool that exists.

Very quickly and without too much difficulty, compensation and audit committees will find that there are a lot more good choices - at much more reasonable prices - than they think exist now.

Google, Social Media and Watching Larry Grow

Not long after Larry Page took over as Google's CEO, he made it excruciatingly clear that Google was - finally - going to crack the code and get good at social media.  Really good.

How?

In great part by making sure that the multiplier used for bonus calculations for every Googler (the name Google employees give themselves) was directly impacted by the company's success in the social media space.

Nothing like putting everyone's money on the line.

But, give Google their due, under Page's guidance - and his commitment to creating a company-wide 'ecosystem' for social media - he's making sure the company makes the investments needed so that everyone can win.

That's why the announcement that Google has purchased PostRank means more than just the fact that the company has bought another social media-related enterprise.

Because PostRank is right up Google's alley. According to PC World, PostRank is an analytics firm that provides "real-time data on on the number of comments, tweets, bookmarks and other social responses that a particular piece of content or information has been able to generate on the social web."

That's necessary because social is moving directly toward monetary conversion pressures and expectations. It's a great fit, however, because there's nothing that Google likes more than numbers,
algorithms and mechanisms that help figure things out.

So, good decision Google - because you've made the right acquisition strategically and culturally. 

Sweet.

This move, among others, is a clear demonstration that Larry Page was ready for the CEO seat...contrary to many of the contrarians who were convinced that Eric Schmidt stepping out was the beginning of the end of the company.

They were wrong.

No one knows who will win the social media wars, but, whatever you do, don't figure Google for roadkill anytime soon.  Page is fighting to win - and now he's got a new tool to help.

(This article was originally published on Technorati.)