Executive Compensation: Fear, Scarcity and Wrong Measures
Over a decade ago, I wrote an article entitled, "Worth Every Penny" for a local Silicon Valley business publication. My position was that the entrepreneurs who were building their dreams into companies should be compensated for the work they were doing.
My reasons for making that particular case at the time were that:
- The entrepreneurs were building a new industry
- They bootstrapped in for months and years before getting their funding
- I had no idea that they were burning cash as stupidly as they were once they had it - nor that their investors were allowing them to do so.
This was the beginning of the executive compensation anger that is so rampant now. Frankly, had I known then exactly how insane the compensation system would become for executives in all industries, I'd never have written the article at all.
If we want we can go into the blah-blah-blah of:
- The reactive VC/Angel investment model of the day that led everyone to jump on the bandwagon and get their bucks in first (which led, interestingly enough, to the need to legislate to protect stupid investments by dentists - or stupid dentists, you choose)
- The fear that someone else would take over the market before there was - or would be - a market
- How eyeballs were considered currency....
You know the rest.
In fact, as you look at the newest social media IPOs out there, in some ways we're seeing the same thing. Plus ça change...
But I digress.
Today, as the Governor of the Bank of England is calling for cuts in bankers' compensation, I listened to an interview with Ralph Silva, Director and Banking Analyst with SRN, talking about that subject. He said:
"The assumption is that the actual shareholders care. The truth is if you tell the shareholders how much these senior executives are getting paid they're probably going to want them to get paid more. Why? Because they want the best of the best and the shareholders simply don't have a problem with these huge salaries."Continued on the next page
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