BulletProofBlog the blog on crisis communications

Each week, Bulletproof Blog features exclusive interviews with thought leaders on issues of critical importance to companies and countries. This week, with executive compensation issues creeping back into the news despite an increasingly positive economic outlook, we interview Robin Bond, Founder and Managing Partner of Transition Strategies, LLC.

A nationally-recognized attorney and thought leader in the areas of workplace law and executive compensation matters who has made numerous appearances on CNN and other national and local media outlets, Ms. Bond shared her insights on executive pay issues with Bulletproofâ„¢:

With the economy beginning to show signs of recovery, do you believe that executive compensation issues will continue to receive the same amount of media attention as they did during the height of the financial crisis?

Robin Bond: The topic of executive compensation is still a critical one. Not a day goes by that I don' t read something about the topic in the Wall Street Journal and in other major news publications and online sources. For most mass consumers of news, executive compensation is a very complicated topic, so the media has to present the information in simple-to-understand concepts, or else attention span tends to fade.  Complex topics just aren' t well suited to 30-second sound-bytes, but emotional appeals are, and often that is what we are seeing.

For example, we all get a paycheck, and, by nature, are curious to compare how we are doing with how others are doing. The huge spate of layoffs the country has suffered has heightened this sensitivity and has increased people' s feelings of vulnerability and uncertainty about the future. It continues to be a sore spot with people that the executive who lays off 10,000 workers gets a seven-figure bonus for doing so. They are not looking at whether or not this was exactly the right thing for the company, and frankly, they don' t care. They care about being able to get up and go to work so they can bring home the mortgage payment.

Remember the old movie, Network, where Howard Beale delivers his "I' m mad as hell, and I' m not going to take this anymore" speech? That did a lot for Beale' s ratings in the movie. This type of emotional appeal is doing the same thing for the dialogue on executive compensation.

How can companies under attack for seemingly excessive compensation practices best protect against the reputational liabilities that accompany such claims? What audiences must they reach out to? What messages do those audiences need to hear?
 
Robin Bond: The best way to protect against reputational liabilities is to hire people with good character and a strong internal moral compass, and then provide them with an environment that incentivizes doing the right thing for the long-term. You can' t legislate character, just like you can' t legislate good judgment. The same goes for selecting members of the governing boards of our companies. Boards can' t let the tail wag the dog.   There are a lot of weaknesses in the corporate governance arena that will require courage and commitment to correct.

Our nation has been built upon capitalism and the drive to achieve success is something we should preserve. We think victory should go to the strong - if one player can accumulate all the marbles in the game by his shrewdness and his ability to overwhelm his opponents on every level, then why shouldn' t he have all the marbles regardless of what that means to the rest of society? Unfortunately, taken to the extreme, as this last recession proved, such unfettered behavior can result in the collapse of our country' s financial institutions, businesses, and even mom-and-pop' s pensions. Disasters like this affect everyone, and people are saying that the greater good has to take precedence.

A company' s fear that any change in the rules will cause the "good talent" to take its business and go find a competing game across the street can be addressed by a wide-scale revamping of the game. There is a lot of great talent out there looking for jobs. Send the message that compensation will be reasonably based on economic models proportionate to the services employees perform, both now and over the long-term. If a company' s way of doing business has resulted in extreme profits and bonuses, perhaps we ought to closely examine the business model that has brought about those results and see if that way of doing business can be applied to the marketplace in general. However, if this success has been achieved based on products that are so complex that no one understands them or their long-term impact, or on assumptions or methods that are otherwise questionable, then people want to hear that corrections can and will be implemented before disaster strikes. Clients and the public at large need to be willing to support - with their business - the companies that make real change.

What' s next with regard to executive compensation? Are there issues emerging on the horizon that companies need to be aware of?

Robin Bond: We can only hope that the recession' s market correction also served as an attitude correction - to all employees, to boards of directors, to investors, and the public at large about the risk/reward correlation that is an integral part of the executive compensation equation.

The fact that the U.S. government is so invested and involved in some of our major companies, as well as the fact that we now have a federal "pay czar," are monumental changes in the executive compensation arena. We should be watching closely to see what Ken Feinberg really accomplishes as he exercises his authority over regulating the compensation of the 100 highest paid executives of Chrysler, Chrysler Financial, Citigroup, Bank of American, GM and GMAC.  What he does for these individuals in terms of creating the "right" combination of base pay, bonus, equity, and deferred payments - such as restricted stock - is likely to become a model for other companies to use if taxpayer and legislative scrutiny persists, which I believe it will.

Tactics could include use of "clawback" provisions to reclaim pay from executives, as well as realignment of pay and incentives to be based on performance delivered over a longer period of time, and even caps on bonuses.

Click here to check out a recent article published by Ms. Bond on recent trends in executive compensation incentives and protections.

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