Saturday, January 31, 2009
Performance pay...getting your money's worth.
Performance is the "Holy Grail" of capitalism. To that end America is THE PROMISED LAND. However, what is in fact being rewarded on Wall Street is misleading at best. The cyclical nature of financial markets is a reflection of our overall economy. That being said, why is anyone receiving incentive based compensation, supposedly rewarding performance, for an economic climate for which they have absolutely nothing to do with? This argument applies to both sides of the market. Should individuals be credited for business profits solely attributable to a bull market or vice versa be penalized for bear market results? The short answer is they should not. Blame here is borne by Boards of Directors and corporate compensation committee's for their failure to clearly enumerate and reward actual performance. Whether industry averages or even broader benchmarks are used, incentive based compensation plans must account for the larger economic environment in which their company's operate. While most of Wall Street, or what remains, is being lampooned for the ill timed incentive payouts, the actual culprits reside on the Boards of Directors and Human Resource Departments.
Performance is the "Holy Grail" of capitalism. To that end America is THE PROMISED LAND. However, what is in fact being rewarded on Wall Street is misleading at best. The cyclical nature of financial markets is a reflection of our overall economy. That being said, why is anyone receiving incentive based compensation, supposedly rewarding performance, for an economic climate for which they have absolutely nothing to do with? This argument applies to both sides of the market. Should individuals be credited for business profits solely attributable to a bull market or vice versa be penalized for bear market results? The short answer is they should not. Blame here is borne by Boards of Directors and corporate compensation committee's for their failure to clearly enumerate and reward actual performance. Whether industry averages or even broader benchmarks are used, incentive based compensation plans must account for the larger economic environment in which their company's operate. While most of Wall Street, or what remains, is being lampooned for the ill timed incentive payouts, the actual culprits reside on the Boards of Directors and Human Resource Departments.
