In a column that would seem more appropriate for a left-wing college campus news zine than The Wall Street Journal, McGill University professor Henry Mintzberg offers a proposal for how to change compensation practices in America: get rid of bonuses.
Mintzberg offers some well-worn -- and completely valid -- criticisms of stock-based compensation: golden parachutes, retention bonuses, etc. He explains the problems that come with assessing performance and raises another question that isn't talked about nearly enough: just how much of a role do CEOs really play in determining a company's success or failure?
Mintzberg asks: "When it comes to a company's current performance, history matters, culture matters, markets matter, even weather can matter. How many chief executives have succeeded simply by maneuvering themselves into favorable situations and then hanging on while taking credit for all the success?" Mintzberg takes this line of reasoning a step further to argue that, in fact, any CEO candidate who wants the potential to earn bonuses should be eliminated from contention:
It has been claimed that if you don't pay them, you don't get the right person in the CEO chair. I believe that if you do pay bonuses, you get the wrong person in that chair. At the worst, you get a self-centered narcissist. At the best, you get someone who is willing to be singled out from everyone else by virtue of the compensation plan. . . Accordingly, executive bonuses provide the perfect tool to screen candidates for the CEO job. Anyone who insists on them should be dismissed out of hand, because he or she has demonstrated an absence of the leadership attitude required for a sustainable enterprise.
Wow.
The problem is that, for all the problems that come with trying to assess performance, paying people the same amount for great work as for horrible work just doesn't work. See also: AIG, Lehman Bros., General Motors. Compensation committees screw up bonus structures all the time, and there is work that can be done to align executive pay more closely with long-term shareholder value. But eliminating bonuses is getting rid of your toilet (and replacing it with nothing) because it gets clogged sometimes.
On the biographical information posted on his website, Mintzberg notes that "I have been an academic most of my professional life."
Who would have guessed?
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