Complaints about how executive compensation is covered

Jay Lorsch, a professor at Harvard Business School, is critical of how the business media covers executive compensation, arguing that the stories don’t add much insight to the debate about how executives are paid and whether huge incentives in cash, options, and stock really do motivate them to work harder or smarter.

Lorsch writes, “Why so little light from so much coverage? First of all, these accounts report one gross figure with little or no information about how the amount is divided between salary and incentives or about the nature of the incentives. At the same time, they completely ignore the fact that the great majority of these executives would work equally hard for much less. Pride and loyalty to their colleagues and their company are also major factors in their work life.

“Another aspect of the silliness of this season is that most critics use as their key metric for company success the annual change in the company share price, as well as other short-term indicators of company economic performance. What makes the focus on such measures silly is that there is increasing evidence that successful CEOs focus on longer-term drivers of company success, such growth through new products and businesses or global expansion, which take years to achieve. In this way they ensure that their shareholders won’t be the only ones rewarded; so will various stakeholders, including employees, customers, and suppliers.

“I have no problem with journalists, shareholders, and others keeping a watchful eye on executive compensation. Such surveillance gives board compensation committees the backbone to create reasonable plans that provide valid incentives, while eliminating egregious lump sum payments like golden parachutes and handshakes. Beyond that, there is certainly the possibility that the say on pay provision in the Dodd-Frank Act will empower shareholder oversight as investors express their (admittedly non-binding) views on executive pay packages.”

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