When Does Executive Pay Become Excessive?

The lightning rod executives are afraid to touch

“We published it,” Leslie Braksick said, referring to the salaries of the leaders of her company. “We were very open about it.”

Leslie Braksick stands out as one of the most successful entrepreneurs and CEOs I know. Yet, if she were so smart, why would she “publish” information that can become a lightning rod in any organization? 

And why is the subject of the boss’ pay generally guarded as a castle secret by most organizations? It literally took an act of Congress (empowering the SEC) to compel public companies to shine a light on the amounts executives get paid. And why did the U.S. congress feel compelled to adopt rules in 2010 that require public companies to disclose the ratio of the highest-paid executive compared to the pay of the average employee? 

Because, um – well, maybe it’s a little embarrassing? Can you imagine getting on an elevator to go home at the end of the day, finding yourself standing next to a work colleague who casually mentions that he or she makes more in a day than you make in a year? Think of JP Morgan, WallMart or Comcast. Now reverse those roles. How would you feel about making hundreds of times more than the person next to you on that elevator? Would you both feel like you share a common Mission? Would you feel like your both “in this together,” fighting for a shared cause?

Before addressing the question as to the impact of pay on a culture of shared commitment, let me be clear- I am a capitalist. I believe in the American Dream of creating wealth in exchange for hard work. I believe in rewarding those risk-taking entrepreneurs who bet their fortunes on their capacity to innovate. And I certainly agree that those leaders who run our large companies, who create jobs and employ thousands of workers, should make more than our professional athletes, who play games for a living.

Ok, back to the elevator. Not only might it be embarrassing, but it’s also demotivating. That lower-paid worker, upon learning that his boss makes hundreds of times more, is likely to conclude that his job description is (at least in part) to make his boss wealthy. Upon learning this, who wouldn’t conclude that one comes to work on Monday morning merely to enrich and empower his boss? And, it is true (at least in part)? After all, workers show up to help the company succeed and highly compensated executives are siphoning off a part of that success. 

So what? Compensation professionals might point out that these highly paid executives are merely earning a “market wage.” In fact, a common response to those SEC disclosure rules is for boards to hire independent compensation experts, helping satisfy investors and validating that many of these lofty compensation packages are comparable across the market for similar skill sets. Again, in a capitalistic society, like ours, there is nothing technically wrong about any of this. 

That is, unless the excessive compensation packages contribute to a demotivating organizational culture; because a demotivating culture translates into lower performance, less value to the shareholders and less benefit to our capitalist society. When excess executive compensation results in a demotivating organizational culture, that’s wrong! One sign of a demotivating organizational culture is one where employees conclude that they show up on Monday morning merely to enrich their boss. And that gets us back to the elevator. And that explains one of the reasons why many executives don’t go near the lightning rod that is the disclosure of executive compensation. 

Leslie Braksick, on the other hand, “published it.” And Leslie is, indeed very smart. Leslie went on to explain to me some of her philosophy about building a high performing organizational culture. She, together with Chip Bergh (CEO of Levi Strauss), General Robert Van Antwerp (Chief Engineer of the Army Corps of Engineers) and others shared stories about “fusing” people together in an organizational culture of shared purpose. These stories make up the content of my recent book- Fusion Leadership Unleashing The Movement of Monday Morning Enthusiasts. Fusion Leaders begin to “fuse” their teams together when their teams conclude that the leader’s behaviors evidence that their leader is equally committed to the organization’s success as they are to their own self-interests. That’s motivating!

Fusion Leaders fixate on the question as to how a leader’s behaviors attract followers to their organization’s purpose; and, how those successful behaviors differ from those behaviors that drive workers away from an organization.

So what is the “right” executive compensation package? And when does executive compensation drive good workers away, by contributing to a demotivating culture?

The philosophy of Fusion Leadership greatly simplifies this otherwise complex question. Every executive and every corporate board should determine that compensation amount (assuming its “published”) that just tips the scale, where employees begin to conclude that their boss is more interested in his or her self-worth than they are in the Mission of their organization. Once this tipping point is determined, set the executive’s compensation package at a level that is one dollar less than this amount. This approach insures that our highly compensated executives are placing the success of their organizations at a priority level that is at least equal to their own self-interest. 

That’s motivating. That’s Fusion Leadership. And that will make all executives much more comfortable in approaching the lightning rod that is disclosing executive compensation.