Management guru Henry Mintzberg believes that executive bonuses should be scrapped altogether. “This may sound extreme,” he notes, “but when you look at the way the compensation game is played – and the assumptions that are made by those who want to reform it – you can come to no other conclusion.
The system simply can’t be fixed. Executive bonuses – especially in the form of stock and option grants – represent the most prominent form of legal corruption that has been undermining our large corporations and bringing down the global economy.
“Get rid of them and we will all be better off for it.”
He lists five reasons why senior executives have failed their organizations.
1. They play with other people’s money – the stockholders’, not to mention the livelihoods of their employees and the sustainability of their institutions.
2. They collect not when they win so much as when it appears that they are winning – because their company’s stock price has gone up and their bonuses have kicked in. In such a game, you make sure to have your best cards on the table, while you keep the rest hidden in your hand.
3. They also collect when they lose – it’s called a “golden parachute.” Some gamblers!
4. Some even collect just for drawing cards – for example, receiving a special bonus when they have signed a merger, before anyone can know if it will work out. Most mergers don’t.
5. On top of all this, there are chief executives who collect merely for not leaving the table. This little trick is called a “retention bonus” – being paid for staying in the game!
So is Henry right? Maybe some guidelines would help.
• Assume that people are motivated by self-fulfillment, not financial incentives.
• Base rewards on teams rather than individuals.
• Evaluate and reward team performance “with hindsight.”
• Give everyone a stake in success.
• Be wary of share options and restricted stock grants.
• Take employee recognition seriously.