Corporate Eye

Compensation Caps –> Executives Exodus?

Executives Exodus?
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The business news is overflowing with articles about what effects the caps on executive compensation will have on the C-Suite members.

Here’s what University of Chicago compensation expert Steven Kaplan said in a recent interview

(He) called the plan “ill-advised” and “very dangerous.” He predicts a “mass exodus” over time as employees leave in search of higher cash compensation elsewhere.

Then there is this from BusinessHax

Analysts say the most elite bankers could decide to quit, along with key associates, and start boutique firms rather than accept big pay cuts. Others could defect to foreign banks or hedge funds without pay restrictions.

Hmm, this looks bad. But, wait a minute–is it really that bad? The current crop of executives facing the compensation caps include those who were responsible for the economic crisis. Maybe replacing them with younger executives already employed by the company or hiring them from the “outside” might just be as Martha Stewart says, “…a good thing”.

Promote Younger Executives

If the company has at least an adequate Leadership Development process, it should have a pool of high potential people to replace the executives that leave. An added benefit is that there is a likelihood that they will be more ethical. According to  “Top CPA Firm Concern: Recruitment and Retention“–

Ethics placed well above pay among young executives considering job offers, according to a McKinsey & Co. study conducted two years ago. The top ranking factor influencing their decision to accept an offer was the firm’s “values and culture” at 58 %, while “high compensation” was important to only 23 %.

Hire From The Outside

Financial industry purists may claim that the highly specialized nature of the industry’s leader competencies would militate against this. However, according to “Creating a competitive edge: the value of cross-industry knowledge”, Business Strategy Series Year:2007 Volume:8 Issue:2

Innovative organizations hire leaders and team members who possess cross-industry knowledge. This is one of the keys to dealing with the rapid change and ambiguity of today’s business environment. These individuals are adept at transferring successful experiences, processes and tools from other industries in order to develop and sustain a competitive advantage.

Supporting this was a blog post on CNN

I don’t buy the argument that they will lose “Good People”. In fact, if these guys quit it will make way for younger, brighter people who need jobs and would be happy with $500,000 and who would probably have some fresh ideas on how to fix things!

This idea of younger executives with new ideas has merit. They are less likely to have the bad baggage acquired through years climbing up the organization ladder. Perhaps the pool of bright younger leaders in your organization just might be a key component of helping companies get out of the mess caused by the “old guys”.

These younger leaders not only will help get the company out of the rubble, but their ideas increase the chances that the company’s growth prospects will improve. Their higher standards of integrity and ethics should help the company to keep out of future scandals.

Image Source (good article on Generations at Work).

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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.
 
Comments

I like the idea of bringing up some young blood. If the older, don’t-rock-the-boat, don’t-take-risks, don’t-adapt codgers want to leave in search of higher pay; I’ll help them pack their belongings. In my opionion, the existing crop of senior executives were at best, ineffective in their efforts and therefore their warnings/threats about leaving a business leaderless are empty.

I’ve always understood that senior executives are largely responsible for corporate strategy and if this is the case, they failed miserably. I can see the benefit of bringing in personnel from outside an organization or industry to provide fresh insight. It also never hurts to provide opportunities for younger employees.
Sorry, forgot to add great post! Can’t wait to see your next post!

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