Reason For Putting CEOs Pay At Risk
Putting CEOs pay at risk is an effective approach when appointing managing director, chief executive officer or any senior executive, for that matter.
Compensation has always been of great concern to organizations and employees alike. All eyes are especially directed at CEOs' pay.
If you are the business owner, you would need capable CEOs to head your organization. Attractive pay attracts able CEOs. It will also attract the wrong type of people to apply.
Executive compensation is of particular interest to CEOs as well as organizations' Boards of Directors. One important decision that Boards need to make is their approach CEOs' pay.
You cannot afford not to retain executive who cannot deliver. Putting CEOs pay at risk has the potential of attracting a person who is competent and willing to work toward success of of the organization. In other words, people who not ready to shoulder heavy responsibilities are discouraged from applying for the top job.
People lower down the line are keenly interested in their organization's pay policy and any decision relating to it. They will not remain quiet when they see how their bosses' pays are hitting the ceiling while theirs barely move a fraction.
If YOU are the CEO?
If you are a CEO, you may want to see that you are paid a salary commensurate with the heavy responsibilities that you shoulder. It is reasonable that CEOs expect this.
At the same time, you are also required to oversee the effectiveness of the compensation plan for all other employees.
Biased decisions may not go unpunished through diminishing employee commitment and productivity. This can happen if your pay as a CEO is too high for the type of organization you work for while other employees are poorly paid.
Good governance requires Board of Directors to ensure that serving CEOs are not given excessive pay. In addition, they need to see to it that no form of compensation or benefits can be enjoyed by any ex-CEO long after he or she left (what more if the CEO had been sacked).
Boards need to implement a policy whereby CEOs pay is put at risk as one of the employment terms and conditions. This acts as a "wake-up" call for every CEO. High pay requires quality performance.
Things are fine when the organization is doing financially well. When times become difficult, any decision on compensation comes under close scrutiny. If bad decisions had been made, hard decisions must then be made to correct such expensive mistakes.
Perform or Go
It irritates junior people when executives including CEOs receive high pay yet escape any blame, what more prosecution, when they cause the downfall of their organizations. Some senior executives still get paid compensation even after it becomes clear that they are the real culprits.
Of course, there are many CEOs and executives who carry out their jobs in a responsible and ethical manner. They deserve their pay for dedication to making their organizations financially successful. They deserve the compensation as provided for in their terms of appointment. They need not worry about provisions such as putting CEOs pay at risk.
Forfeiture of Bonus
Poorly performing CEOs must forfeit part of their bonus as well as not getting the pay increase if they fail to perform. How can any CEO keep receiving pay increases higher than the increase in profits made by the organization? How can CEOs expect
payment of bonus in full and receive a pay hike when the organization makes a loss?
Putting CEOs pay at risk sends the message that they need to work for it
Hopefully, CEOs will perform well beyond expectation. Business owners need to keep CEOs on their toes. And if they perform over and above what are expected of them, then they deserve their pay. They deserve to keep their jobs.
If not, they have to go.
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