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Opening keynote: rethinking Pay for performance: what have we learned about pay for performance in the current financial crisis that can help us do a better job in the future?

Article Excerpt
Our approach to executive compensation needs significant overhaul. At a time when several major financial institutions and industrial companies are on life support, shareholders have every right to question pay practices that have delivered outsized financial rewards to executives despite poor or unsustainable company performance. As the federal government has stepped in to backstop banks, auto manufacturers and our largest insurer, public outrage about executive pay has intensified.

The public acrimony over the AIG retention bonuses marks a new and alarming peak in anti-business sentiment that risks compromising the success of the measures being taken to repair the damage to our financial markets. It may also complicate our efforts to repair the economy. Private sector reliance on taxpayer-funded bailouts has also invited retaliatory legislative action on pay levels and pay policies. However, one-size-fits-all compensation rules crafted on Capital Hill are not likely to provide the right incentives to recruit and retain the skilled managers that we need to fix our companies and our economy. The recent executive compensation rules outlined in the stimulus package will further de-link pay from performance and over time, prompt an exodus of talented professionals from the...

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