Sent: _/__/2010 ______M. Central Daylight Time
In our view, problems with compensation are symptomatic of the larger challenge of ethics.
If we want to encourage leaders to think of themselves as stewards, ethics and ethical
leadership belong at the heart of the compensation discussion.* * * *
In hindsight, it is now plain that many compensation plans were flawed by poorly designed
incentives that allowed CEOs to win, but never lose. Particularly in financial service industries,
pay structures often encouraged CEOs to focus on short-term gain without regard to
its sustainability, roll the dice on high-risk strategies in order to trigger incentive pay, and
neglect long-term planning.* * * *But absent an ethical culture, even the best designed compensation plan can only do so
much. Barry Schwartz, a professor of psychology at Swarthmore, says the problem with incentives
is that “they get you exactly what you pay for, but it never turns out to be what you
want” because smart people figure out how to manipulate almost any numeric metric.* * * *Isn’t it really about ethics when:
Leaders expose their companies and employees to needless risk in order to
meet short-term financial goals?* * * *ERC recommends that a corporate board:
Establish an Ethics Committee of the board to monitor its own activity,
to assess the organization’s ethical culture, and to ensure that ethical leadership
is a priority for senior managementRecruit knowledgeable ethics professionals for board seats to provide
other directors with a strong understanding of how to make ethics part of
the organization’s culture
Dear Mr. Shatt:
Thank you for your email. I do not believe that I received your previous email that you indicated was sent to all speakers at the Chicago ECOA conference.
In any case, I have read your email as well as the supporting arguments that you made on your blog.
I am afraid I cannot agree with your arguments as presented. Your proposition that civil law liability is antithetical to promoting ethical conduct by business or deterring them for being unethical is not supported by any evidence or logic theory. Instead, you present it as “self-evident” truth and as a matter of strong belief on your part. Given this level of faith in your belief, I cannot see how a reasonable argument can be made as part of thoughtful discourse.
Taken at face value, and extended to other arenas of unlawful or unethical behavior, you would suggest that white collar crime can best be eliminated or reduced by allowing criminals to continue with their behavior. And that any indication of punishment would encourage them to continue with their unlawful conduct because it is profitable.
Furthermore, you are concerned about the compensatory aspects of the law that provide at least some restitution to the victims. Why not make a counter arguments that a higher level of punishment, both monetary compensation and even prison time, would serve as a deterrent to dissuade unethical conduct prohibitively expensive.
I am not suggesting that you are wrong, but simply that your arguments are just assertions which must be proved.
May I suggest that you reach out to ECOA leadership, or for that matter, ask some members of the business community, to organize a panel to raise and discuss these issues. However, to do so, you need to make sure that the sponsors of such a discussion panel are not merely interested in it as a matter of self-interest, but are concerned about it as a matter of wise public policy that would promote social good.
From across the spectrum of experts and advocates, of political leaders and ordinary
citizens, there is a belief that executive incentives have overemphasized short-term performance,
encouraged excessive risk-taking, and failed to penalize poor performance. Many
believe that incentive plans have tempted some CEOs to put personal financial interests
ahead of good stewardship that serves the long-term interests of their organizations.