What's the real issue with executive compensation

There’s a great article in the WSJ from May 20th on executive compensation: (Shell Investors Revolt Over Executive Pay Plan; Marketplace page B1). The article though well written misses the core issue about the importance of the executive compensation debate. Let me tell you, it ain’t about the money! It’s about the effect that Board and executive behavior has on the health and performance of these organizations.

Apparently Shell’s Board approved a plan where the C-Suite executives would get performance-based share compensation if Shell “placed in the top 3 of its peers in a ranking of total shareholder return, based on share price and dividend payouts”. Now there are always two issues when it comes to executive comp. One issue is plan design; does it inspire the proper behaviors in order to insure the long-term health of the company. And the second is execution. So for arguments sake let’s say I agree with the design. So, that’s the plan? OK, fair enough. it’s a goal, and they agreed to it so they all, including shareholders should have to live with the outcomes. Well Shell came in 4th. And the remuneration committee promptly changed the rules, using their “discretion” to award the shares anyway. Their rationale: “Well we only came in 4th by a little bit and the ranking, metrics we devised, didn’t really reflect our performance.” There are so many things wrong with this that I almost don’t know where to begin (But as my business partners will tell you, that never stopped me before)…lets put aside for a moment that the Board has admitted by this action and their statements that they have no idea how to set effective targets or devise metrics that would “reflect” actual performance. Lets instead talk about how this would work on a day-to-day basis and what it means for corporate health and performance. In even a moderately sophisticated performance and compensation plan regime, these metrics, share price and dividend payments, would need to be tied to the operational activities that the executives felt would best move them in a positive direction. Then each successive level of management, middle management, division chiefs, team leaders and line employees would be given their own goals so that there behaviors and actions would be best directed to execute those operational activities. If the management team is smart they have shared these top levels goals with everyone in the organization, and then tied ALL discretionary compensation to the superior achievement of those operational activities at each level. This is how we achieve what Dr. Jeff Pfeffer at Stanford University calls “alignment”. It’s how the guy sweeping the floors in the Albuquerque plant knows why he’s doing it and how cleans floors eventually tie back to total shareholder return. Once we all know what to do, why we’re doing it and what’s in it for me if I do a good job at it, then executives can ask us to run through that last brick wall or take that last hill and know we’ll do it because we understand. In fact this understanding is what drives employees to do it on their own, to exert discretionary effort, so that the organization succeeds.



So, what has Shell wrought for the future of the organization?

Well lets say that the executives, believing that they truly deserve this compensation (WTF?) actually do the “right thing” and pay the other members of the team and on down the line, their promised discretionary compensation as well. What happens next year when my manager asks me to stay late on Friday when I really would rather go drinking? If the goals are not really “goals”, they’re just sort of guidelines and if we get “close enough” we’ll all get paid anyway? I’ll see you at the bar at 5:02, if I hustle maybe 4:59! I like working here, I’ll do what I can, but I’m not going to bust my butt on a consistent basis if I’m going to get paid no matter what.



Now, let’s say the executives do what most executive teams do: Yes, as the CEO I got paid because, well, I’m a genius. But you dumb bastards down in the bowels cost us to come in 4th and heads are gonna roll because we can’t afford to be 4th!! How quickly do you think it takes employees to understand that the management speeches about teamwork, going the extra mile, all pulling together for one goal, etc, etc, are all about one thing? Making sure that executive gets paid no matter what happens to the worker bees. And not to overstate the obvious but what now happens to loyalty, morale and productivity? (Turnover, profits and innovation?)



What has Shell wrought? Classic, lose-lose.



As a CEO for 20 years this type of behavior infuriates me.

For Monika

My friend Monika took me up on the "just ask" part of my profile and wants to know what makes me the happiest after all of my life experiences.

OK, here goes: I'm a romantic; I LOVE my friends and family and get more joy than almost anything when I'm just with them, no agenda, just enjoying each other. As you'll see I said "almost anything" because other than just being with my friends and family there is one thing that makes me the most happy: I am addicted to love! I'm addicted in a way that is almost hard to describe. People often wonder and ask why I've never been married. I used to say it was because I've never found the right woman, but I've come to know that this isn't true. I may have found the right woman many times over...I certainly did find her 4 years ago. But even in the story of that love, which went wrong there are parts of my true happiness. I simply don't understand how love ends. How someone can love you and then a day later, or a week later or a month later or 10 years later, after knowing all there is to know about you, decide that you aren't a good person, decide that their love and affection was misplaced. I know, events happen and sometimes people do things that are seemingly unforgivable. But those events seem so few and far between to me. Not as frequent as we'd make then in today's world. I know I'm rambling right now but the fact is I don't think most people understand the meaning of the word LOVE. "I love you but not if you spend too much money."..."I love you but not if you've ever been with another woman."... "I love you, but I just can't be with you"..."I love you but this person is better for me."..."I'll always love you but goodbye."...too me most people have no clue what love really means. I think I do...and maybe I'm wrong. I love beauty, friends, family, and I love the idea of love and it makes me happy. I just wonder if I'll ever meet anyone who understands it the way I do? I think you meet people and you have a connection with them and if that connection turns into or equals love, you can't just throw that person aside for someone who makes more money or who seems more "stable" or who "understands" you better. All the details are bullshit if you have real love!!! They'll happen or they won't but real love transcends the day-to-day. It drives a stake in your heart and pulls you to that person. even when you know it's wrong you can't help yourself.

Anyway, this sounds more like what makes me unhappy....My life is about beauty, knowledge, loyalty, friendship, family and Love!

That's for you Monika!!

In Defense of Marriage...

OK, so this stupid twit Miss California now says she will continue to do "whatever it takes to protect marriage"....???

OK, maybe someone who reads this can explain it to me...If I was married, and my two gay next door neighbors then got married...what happens next? Does my marriage magically just dissolve right before my very eyes? Or maybe everyone in my neighborhood who is married to someone from the opposite sex decides that since the gays are now married they are all going to get divorces?? I need to know how this works. Families are good for society and marriage is a good thing for families so if letting gays get married is going to automatically make all other marriages null and void or make everyone who was thinking about getting married change their minds...

OK, this is even too stupid for satire.

I Hate Anthony Bourdain

I hate Anthony Bourdain. OK, I don't really hate him, hell I don't even know him. I think he'd be fun to hang out with. A little full of himself probably but good fun I'd imagine. He drops a lot of names so we could get out "celebrity" on! What I hate is that he wrote a book like Kitchen Confidential before I had the balls or the better yet the focus to write it on my own. He's probably a better writer than I am, but he ain't got any better stories than I do! As many of you probably know I was in the restaurant business for more than 20 years. Started when I was 16 as a "busboy" at a bar called the Parrot in Bayport Long Island. It was a long time ago and I think I was working there with my friend Frank Massa...maybe his older brother worked there...I don't even think we got paid, but I learned how to carry 9 beer mugs in one hand.

I guess I hate him because he's an innovator. Sometimes when you see innovation it seems so simple. You say, "shit, I coulda done that! He's making money off that bullshit?" Its crazy! I'm thinking of this because I've been reading another of his books called The Nasty Bits. It's just a series of essays that he's published in news papers and magazines but they're all along the same lines, talking about the crazy situations, incredible hard work and insane people you come in contact with when you work in the "hospitality industry." I think he seriously overstates this concept of kitchen guys as this rouge band of tough guys with questionable morals...(ok, maybe the questionable morals part is true) that no one else understands and everyone is afraid of. That's all pretty much bullshit. I never met a chef that intimidated me. (except Mike Soper who's the scariest man with one leg and Ann Cashion who intimidates me with her sheer talent!). Maybe I should have been intimidated by some, I'm not that smart. But in general chefs are just like everybody else, some tough guys, some..not so tough. But it is true that all of us in that industry do share a kind of brotherhood which is hard to describe. To this day my best friends, my best clients and all of my loves have been people who I either worked behind the bar with, met in the restaurant, who worked in the industry in the past or I admired their work at another restaurant. Chefs have a hard life, but so do waiters and hostesses and busboys and bartenders. Maybe one reason I feel less than impressed though thoroughly entertained with his stories of toil and debauchery is that I've done probably the only other job that's at least as hard as being a chef. Designing an building restaurants for chefs...most chefs don't know anything about opening or running a business. Then they hire people who do to help them and ignore them because they're so damned arrogant. I never fret over restaurants that close becasue they probably shouldn't have been open in the first place. Running a restaurant is tedious and mind-nummingly difficult work. Building and opening restaurants is terrifying and more intense than anything I've ever done. Everyday you stare disaster in the face, and not just the "I'm in the weeds, dinners are pissed off, we're out of shell steak" types of disasters; we're talking about decisions that could cost your client hundreds of thousands of dollars tomorrow type disasters!!! (Like "hey, is this $2MM building we just finished 3' too close to the highway?" or like this discussion I once had with a fire marhsall; :"yes I know your owner as spent over $500K on this opening party tonight but if that elevator call button isn't fixed in 10 minutes you're not getting an occupancy permit until I get back from vacation next week"). I guess at the end of the day it's this kind of madness, and our love of it which keeps those of us in the hospitality business tied together like a family. Like my friend Marilu Munoz said to me last night, "you hate Bourdain? I think I love him"...I guess he's ok. He's family!