Marketwire reports that The Corporate Library's Editor and Co-Founder, Nell Minow, testified in front of a Congressional committee yesterday. Her message was "that if you make compensation all upside and no downside that will affect the executive's assessment of risk. It will make it clear to him that he can easily offload the risk onto shareholders. It's heads they win, tails we lose."

I agree with her. Unfortunately, she does not make clear what should replace this system. I've posted on this topic before and have proposed that people who make big bucks should keep on making those big bucks -- but with a twist. Instead of giving them all their compensation up front, put the money in an escrow account for, say, 10 years. If the decisions that these highly paid executives make end up paying off for shareholders, pay them the money in the escrow account. If, by contrast, those decisions lose money for shareholders, pay the money in the escrow account to the shareholders.

Nell Minow pointed out that "with executive compensation you get what you pay for and you pay for what you get." My proposal would provide a powerful incentive for decision-makers to take the risks of their decisions into account as well as the short-term benefits of closing a deal. This is a problem that is not limited to executives -- it has to do with anyone who is paid for closing a sale. These people receive a percentage of the deal amount as compensation -- this makes them eager to close big deals fast.