Today's Wall Street Journal has a simply brilliant argument by management theorist and guru Henry Minztberg titled "Get Rid of Executive Bonuses." I think it is brilliant because it marries the results of diverse and compelling research from many corners of academia with a concise and logical argument. It also is consistent with Dan Pink's argument I mentioned recently that many of the assumptions beneath the way we run organizations are based on little if any evidence — but rather are articles of faith. As always, I also love Mintzberg's boldness. The heart of his argument, and you must read the nuances, is that three of the assumptions about the logic for executive bonuses clash with the weight of the evidence:
A company's health is represented by its financial measures alone—even better, by just the price of its stock.
Performance measures, whether short or long term, represent the true strength of the company.
The CEO, with a few other senior executives, is primarily responsible for the company's performance.
Mintzberg then digs into a topic that Jeff Pfeffer and I talk a lot about in our chapter in Hard Facts on "Do Financial Incentives Drive Company Performance? That is, what kind of people does your performance evaluation system attract and what kind does it drive away? Here is what Mintzberg, note how he turns the argument that "if we don't pay these people bonuses, we won't have enough good people." I quote:
Actually, bonuses can serve one purpose. 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. Is this any way to build
community within an enterprise, even to foster the very sense of
enterprise that is so fundamental to economic strength?
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.
Of course, this might thin the roster of candidates. Good. Most need to
be thinned, in order to be refilled with people who don't allow their
own needs to take precedence over those of the community they wish to
lead.
I confess that some his arguments even make me squirm, and I also am concerned because he doesn't really spell out what system might replace bonuses. But his last argument (especially the part I have put in bold letters) really appeals to me, in part, because one of the best definitions I ever heard of an asshole executive is that he or she consistently puts his or her needs and wants ahead of the company and colleagues. Mintzberg is making a compelling argument that the current system seems largely designed to attract and create exactly that flavor of asshole!
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