Frank Glassner, founder and CEO of Compensation Design Group in San Francisco, has advised companies on pay practices for executives and other employees for three decades.
Q: Are business people and employees still angry about the financial debacle and rising pay to executives — especially on Wall Street?
A: The outrage is at the highest levels I've ever seen. There are too many non-performing CEOs whose pay does not conform to reality. Twenty years ago, CEO pay was 250 times higher than rank-and-file pay. Today, it's 600 times, even as the country slides into a recession.
Executives shouldn't recklessly gamble with everyone's money, then be allowed to paddle away. That's flat-out wrong. In the words of Tony Soprano, you get paid when we get paid, you get out when we get out.
Q: Given the $700 billion financial system bailout plan, will executive pay level off or keep growing?
A: Pay won't necessarily continue rising. People realize that trees can't keep growing into the sky.
I think pay will more closely match performance, and there will be an appropriate balance to executives' pay and the interest of shareholders.
I will say as long as there are guaranteed golden parachutes that allow executives to bail out of a crashing company while shareholders and employees go down, there will be no reform in executive pay.
Q: Is the bailout plan's limits on executive pay for companies that receive money a wise or dumb move?
A: Congress can't regulate this stuff. It's too complex. The imposition of unspecified pay limits really is a mistake.
Q: Who bears responsibility for too-high executive pay?
A: It's easy to point fingers and vilify CEOs. For every bad CEO, there are 99 good ones. Microsoft, Berkshire Hathaway, General Electric, Procter & Gamble — all are companies that clearly practice pay for performance.
We need to look around ourselves to find the responsible parties, and it's a combination: business people, boards of directors, Congress, institutional investors, mutual funds, the media — and let's not forget executive pay consultants.
Q: What's the easy solution to a complex problem?
A: If we had very clearly defined regulations based on the design of pay plans — rather than on caps and limits on pay — we might go somewhere.
Just a few years ago, it was all the rage for companies to peg executives' pay to earnings per share. Then, all you had to do was to issue and buy back your company stock, and all of a sudden, you were skewing earnings.
If a company performs well, you get paid. If it doesn't perform, you don't get paid.
Hopefully, the financial crisis will teach new lessons to everybody.