Saturday, April 4, 2009

Discussion of the Week - The Right Compensation Model?

Spurred by a Friday headline in the WSJ on CEO pay, an interesting discussion arose about the various ways to compensate employees:

1 - Performance of a group vs. company
2 - Stability of workforce vs. frequent turnover (competitive salaries)
3 - Stock Options only
4 - Vesting of Bonuses (pay it forward)
5 - Other??

Among the people in the discussion; a COO, a Banker, a Director at a company that is owned by a Private-Equity firm, and someone that has seen huge gains and losses from Employee Stock Option Plans.

How to avoid creating compensation models that lead to short-term decisions (profits) that may create long-term destruction of value? How much of the compensation should be tied to individual or group performance vs. company performance? How to create "internal start-up" environments that encourage your best employees to explore their great ideas without losing them to outside opportunities?

We did not come to any hard conclusions, but I suspect this discussion will continue throughout the program, and be heavily influenced by the changes coming out of the economic downturn. It was encouraging to see so many divergent viewpoints being debated openly. The program is really starting to bring together the breadth of topics that drive these types of conversations, and have been changing the thinking of the class.
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