Poor Bernie? (Getting our head out of the sand)

I must say that I’ve had numerous reactions to the Bernie Ebbers’ news of late- from “good riddance”, to pure apathy. Actually, I did feel a flash of compassion, as I read about his blubbering crying episode in the courtroom- although it was a very quick flash, kind of like when Jim Baker was filmed walking out from his sentencing. But by far, my overwhelming emotion was one of justice. For once, executives in corporate America were given the message that we don’t reward corporate mischief. In fact we now punish it- hard. And that’s a big step forward that was a long time coming.

But there’s a lot more to do in terms of how we reward executive management in this country. Things have gone seriously awry when our executives are given enormous sums of money and other rewards, long before they actually perform. And while they may fail to get their second or third tier bonus when they fail to meet key targets (some actually still do, by the way), they’re base compensation levels are often left untouched. Sure, maybe they lose their jobs somewhere down the road, but only after they’ve banked millions during their performance backslide.

While the recent conviction and big time sentencing of Bernie shows that we are not TOTALLY blind as a society of shareholders, there is a long way to go. Punishing those who overstep the line of executive integrity is a start (hopefully it wont take a year next time). But what about the incompetent executive that brings a company down in flames without having committed a federal crime? There should be clear disincentives that stop that kind of poor performance in its tracks. Just stopping the flow of rewards earlier in the backslide cycle would be a start. To me, this is clearly the next battleground in executive performance management.

Why isn’t this happening today? Sure- part of it is that many Boards and CEO’s continue to “wish these problems away” rather than taking swift action in terms of consequence. Part of it also is the poor design of our compensation schemes that posses precious little in the way of compensation DOWNSIDE for poor performance. Sales teams know this well. Some of the best guys and gals I know in sales have upwards of 90% of their compensation “at risk”. Too excessive? Maybe. But no downside to base comp is equally ridiculous. Executive compensation, in design alone, could use some big time overhauling.

But even if we had well intentioned boards, operating inside of a near perfect comp structure, that was willing to act when it detected a performance breakdown …My guess is that the system would still fail to stop poor performers any earlier than it does today. Why? Because of the way performance is reported. The metrics that we use are often compiled by individuals or sophisticated algorithms, and reported on a periodic- weekly, monthly, or quarterly basis. Sometimes (actually more often than not), at the executive level, the data is reported annually. Hard to believe in the kind of information environment we now find ourselves in.

If we are to reform executive compensation, we must fix all of the things I mention above. But without more timely, accurate, and available performance feedback, even the most perfect system will fail. We must take our collective “heads out of the sand”, and bring our performance information to light, much quicker and more frequently than it is today. It must be broadly accessible, and accessible on demand. In the age of information we live in, there is almost no excuse for the kind of “back room” reporting that still takes place today. The more timely and accessible the information, the less poor performing executives will be able to hide behind their information reporting inadequacy.

So as you navigate forthcoming rounds of executive hiring at your company, do your part to drive performance information into the open forum. There are many tools and systems that will help you do that, in a manner that is more timely, accurate, and accessible. You might not be the most liked person at first, but if you survive the initial pain, you and your company will have a much brighter future.