Risk for Reward

Ken Lay has been on the stand for the last four days, looking for everyone else to blame for the collapse of Enron. Lay is the poster-child for two seemingly contrary trends:

1. Executive compensation keeps rising (averaging 14% per year increases for Fortune 500 companies)
2. Executives are increasingly blaming everything except their own performance for downturns or collapses in their companies

How can you pay someone tens of millions of dollars a year for running a company, and then somehow find them blameless when things go bad? I have no inherent problem with paying someone gobs of money, if they job they do really does add that much value to the company. There are obvious examples where the leadership really does make a profound difference: as far as I can tell, Bill Gates and Steve Jobs are grossly underpaid for the difference they make to their companies. But it seems ludicrous for executives to be able to take credit for good times but shirk all responsiblity in the bad.

I have a modest proposal: peg all executive compensation above a certain modest level (let's be really generous and put it at $500,000) against the real profitability of the company. A company should never have to shell out millions to pay a CEO who can't deliver a real return. And make all C-level officers personally responsible for the accuracy of SEC filings; audits are worthless if the auditors are merely fall guys for the executives (e.g. "but the auditors said it was OK.")

CEOs may complain that this exposes them to all sorts of risks over which they have no control. But then again, isn't that always the case with running a big company? If they dislike the risks, I'm sure I can find someone else who is willing to endure the risks for the rewards.