Ok, I borrowed part of the title from this great article in last week's Wall Street Journal . It’s by Jeff Ubben, head of an activist investment fund. His main point? Corporate America pays its executives to be too cautious. Why? They orient their pay packages to short-term performance factors and they've moved away from stock options in favor of restricted stock units. Executives, endowed with this short-term perspective, become less concerned with growing actual market value.
To me, this means that private companies are in a better position to pay their executives than their public peers. By “better” I don’t necessarily mean “more.” (Although that could result as well.) “Better” to me means “more aligned;" i.e., better for bjoth the shareholders and for the employees.
Much of the pressure to use short-term thinking results from the tendency, in the public world, to do what everyone else is doing. Mr. Ubben promotes a “better mousetrap” approach that orients incentives to sustainable, long-term results.
You should enjoy his article. Or, just check out our other blog or content on our two sites. We’ve been preaching this for a long time: “Focus employees on long-term value creation and share some of the value they help create.”
Conclusion: Private companies should not look to the public market to mimic pay. Get creative. Tie leadership pay to meaningful long-term results through a well-designed phantom stock or similar LTIP.