The Baseball Player Model of Pay for Executives

I am a strong advocate of performance-based compensation programs for companies.  Simply, those employees who create the greatest value to the company and perform well should make more than those who don’t.  Of course, performance is often subjective and the perceived value of what their contribution varies greatly.  This is true both in business and in baseball.  Baseball players are recruited, often sign a huge contract based upon their perceived value (i.e. how they played in high school, college or their last major league team).  They’re guaranteed that money regardless of how well they hit, pitch or catch the ball.  If they are a total bust, they may be traded, but they will make that money regardless–remember, they have a contract.  Plus, there is no correlation to home runs and compensation.   Executive compensation in Silicon Valley is not much different.

On 6/13/2010, San Jose Mercury News  reported 2009 Total Compensation for the Top 50 CEOs.  Did their performance warrant such high levels of compensation? Many of those same companies laid people off, most are still performing below pre-recession levels, and local  unemployment is still over 11% and since 2000 the median household income has dropped more than 6%.

Is Larry Ellison’s performance worth $84 million?   I don’t know.  What I do know is there are many ways companies can spend their money.  Research, innovation, better customer service,  hire new talent, and ensure competitive pay and benefits for its employees.  I’d prefer to see companies hire good employees and build healthy businesses. Unfortunately that’s not what I’m seeing.  But….. I still think compensation decisions still resides with responsible Boards, shareholders and the company while complying with SEC regulations.  It is not the decision of a Government Salary Czar to determine executive compensation…before you know it, they will tell the Yankees to reduce Alex Rodriquez’s pay.

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