In today’s economic times where organizational rightsizing, downsizing, layoffs, and restructurings are a constant, executive compensation is a contentious topic amongst employees, human resources professionals and business critics alike.  Justification for these hefty compensation packages is openly debatable and few are associated with company performance.    Although many agree that CEO compensation in most cases is astronomical, there is currently no wage or classification system which assists Board of Directors with determining the pay of company CEO’s.    Compensation packages for CEO’s of U.S. firm’s have far exceeded their international counterparts at an immeasurable rate.  Some critics of executive compensation assert that more standardization of criteria and performance measurements such as company size, industry type and location, individual and company performance, and a strategic hiring plan which emphasizes attracting and motivating qualified candidates are essential to managing executive compensation.  The company itself is most affected by these executive compensation issues through its bottom line and image in the industry, followed by its employees, consumers, and stockholders.

            Could performance management redefine executive compensation?  When no performance measures are defined and documented for company executives, this places no accountability on the CEO to produce measurable results.  On the other hand, if performance measures are defined, documented, and accountability is placed on the CEO and is tied to compensation, this could prove to be beneficial for all involved.  While employees are paid based on established job classification systems, CEO’s however, arbitrarily negotiate salaries where there is no cap, but rather on what they believe they are worth.  The primary benefactor is the CEO for obvious reasons.  The company is harmed by way of a negative image in the eyes of the industry and consumers of the company’s products or services.  It may also experience retention issues, stockholders may suffer from financial loss, and employees are left to deal with frustration, resentment, and low morale.  There is a saying that “people are motivated by their own self- interest” in which some may define as quite simply “greed.”  But, is this wrong, and if so by whose standards if there are no illegal acts involved?  One might argue that executive compensation with no significant returns before exiting with a large severance package is stealing from the company.  Another may argue that in states in which one can be fired “at-will” at any time, for any reason, or no reason at all, one is justified in gaining as much compensation as one can because one never knows when their employment may suddenly be terminated.  Is this greed or is it a belief that an individual should look out for their own best interest?

            The issue of executive compensation is multi-dimensional; but ethical.  Executive compensation is not illegal.  However, the actions of some CEO’s can be ethically or morally questionable.  From an economic efficiency viewpoint, restructuring or downsizing, may be required in order to arrive at specific business objectives, however, making the decision to eliminate hundreds of jobs while the CEO is overly compensated for providing inadequate performance, is not only ineffectual, but questions ones ethical and moral character.  Human resources professionals can make a tremendous impact by educating Boards of Directors on incorporating strategic performance management initiatives, compensation, and accountability in executive packages.  The human resources profession has made significant strides in becoming more strategic partners with top management, but must continue to vehemently work to gain access and a seat at the table in the Boardroom as well.