The media reported that the CEO of Yahoo, a company that has been doing badly in recent years, got $71 million last year for his failed efforts. The amount was only part salary. The majority of the compensation was in stock options and bonuses. Why does a person whose salary is in the seven figures need additional incentives to perform at his maximum?
This idea of incentives for CEOs, athletes, and movie stars who get a generous salary for the work they do and then extra to make them do a little more is fairly recent. It surely began as an idea at one of our country’s prestigious business schools. The theory is probably that by giving the principal a major stake in the successful outcome of the enterprise, s/he is more motivated because s/he can easily see how success will provide them additional rewards.
I can just imagine a professor at Harvard Business School teaching the students how to maximize productivity a la Ayn Rand.
My question is why do these well-paid individuals need more motivation than the people actually doing the day-to-day work that reaps the profits? Why isn’t it enough motivation to have this important position, be it CEO, COO, CAO, center fielder, movie star, and be dedicated to doing the best job possible?
I object to this practice incremental incentives on several levels. I believe this practice overemphasizes the extrinsic rewards of work over its intrinsic ones. I also think that it encourages greed and all the problems associated with it. It drives some to lie and cheat as we saw so many indicted executives do in the past few years. Usually the goal of the deception was to increase stock prices until the company leaders had a chance to sell their shares at the highest price. It leads others to lay off workers, cut benefits, and cut corners.
I think that it also causes a greater separation between the haves and have nots. While, in the past, the top salary could have been five or ten times higher than the lowest at a company, today it can be 1000 times.
Imagine a worker making $20,000 a year ($10 per hour) and the CEO getting $20 million. Is the CEO really worth one thousand times as much as the lowliest worker? Should his yearly income be 100,000% of his lowest earner?
The irony is that most of the jobs that award bonuses and other incentives are the ones people aspire to for the pleasure of the position.
What high school baseball star doesn’t dream of making the majors? To be able to play with the greats in front of millions of fans who cheer when his name is announced, would be paradise for them. But when they make it, they also need a signing bonus and performance incentives, or else, no deal.
A struggling actor dreams of someday being a star. Fans will want her autograph, handsome men will love her, she will get to play roles that may someday become classics and may lift people’s spirits, even change their lives. What a thrill it would be! But the contract should include a percentage of the box office profits and a generous royalty package for her to even consider the role!?
This is not to say that people doing what they enjoy should not be paid for their services. But there is a point when the focus becomes more on getting paid than on one’s service. I think it makes everything a little less satisfying for everyone connected with this extra-incentive system.
The CEO at Yahoo who got the $71 million paycheck for the year, has been fired. Hopefully, that paycheck will also suffice as his golden parachute. Many of the other overcompensated chief executives have had to return the money or pay it to lawyers helping them try to keep it.
If stockholders and consumers cannot stop this insidious practice then, perhaps, the government should. It could tax income above a certain level, at an extremely high marginal tax rate. The excess tax money received could be redirected to those who really need it for better education, health care, housing and nutritional services.
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