 | Fair Pay, Fair Play: Aligning Executive Performance and Pay |
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Product Description
A timely look at how to evaluate and determine executive pay
Recognized as the leading expert on executive compensation, Robin Ferracone combines her own 20 years of experience with interviews with executives and compensation committees to provide a clear examination of and guidance on determining pay packages, actions, and designs. and Over the past 25 years, the author has created a database of executive pay across 44,000 companies, broken down by company performance, company revenue and industry. Using this data, the author provides boards and individuals evaluating executive pay with the ability to analytically determine an appropriate compensation package.
- Provides real-life stories, perspectives, and insights from thought leaders on executive compensation
- Contains interview with compensation committee members, executives, academicians, government leaders, and shareholder activists
- Research based on 44,000 companies broken down by performance, revenue and industry
Offers a timely resource on a hot button topic.
Product Details
- Amazon Sales Rank: #137687 in Books
- Published on: 2010-04-12
- Original language: English
- Number of items: 1
- Dimensions: 1.00" h x 6.40" w x 9.00" l, 1.06 pounds
- Binding: Hardcover
- 288 pages
Features
- ISBN13: 9780470571057
- Condition: New
- Notes: BRAND NEW FROM PUBLISHER! BUY WITH CONFIDENCE, Over one million books sold! 98% Positive feedback. Compare our books, prices and service to the competition. 100% Satisfaction Guaranteed
Editorial Reviews
From the Inside Flap
Today's organizations are under intense pressure and unprecedented scrutiny to redefine their standards for accountability when determining executive compensation.
Fair Pay, Fair Play offers organizations,including board members, executives, HR and compensation professionals, and investors a new way to think about executive compensation; suggests a model for establishing common standards of fairness and propriety; and shows how to develop a more efficient market for executive talent. Fair Pay, Fair Play adheres to the overriding objective: "executives should be paid on the basis of how well they perform for their shareholders, relative to the external market, within contemporary standards of fairness and propriety."
In this groundbreaking work, noted executive compensation expert Robin Ferracone combines her more than thirty years experience to provide a clear examination of executive pay and offer guidance on how to determine fair pay packages, suitable actions, and appropriate designs. Fair Pay, Fair Play draws on a database comprised of over 44,000 cases, broken down by company revenue, industry group, and company performance. Using these data, Ferracone provides all those charged with evaluating executive pay with the ability to analytically determine an appropriate compensation package. In addition, Fair Pay, Fair Play is filled with real-life stories, perspectives, and insights from thought leaders on executive compensation including interviews with board and compensation committee members, executives, academicians, government leaders, and shareholder activists.
This innovative book offers hope that organizations in the future will rely on inspiration and talent development, in addition to compensation, to attract, motivate, focus, and retain exceptional executives.
From the Back Cover
Praise for Fair Pay, Fair Play
"I like the way that Ferracone tells real-world stories on executive compensation, as recounted by board members and executives on the front lines, and she backs up these narratives with well-researched statistics. Her way of looking at performance-adjusted pay is highly innovative and offers insights that we had previously not seen."
—Roy J. Bostock, non-executive chairman of the board, Yahoo! Inc.
"This book is the best authoritative source on executive compensation today. It takes an extremely complex topic and boils it down to its simplest terms: alignment between pay and performance. Ferracone's Alignment Model gives us a way to test and analyze alignment in our companies. In a word—it is superb! The Alignment Model is a tool that boards, executives, and investors alike can use. This book is required reading for every compensation committee member, CEO, head of HR, and institutional investor in America."
—Alexander L. Cappello, chairman and CEO, Cappello Capital Corp.
"Ferracone provides a set of principles combined with actual accounts of how companies can achieve pay-for-performance alignment on a sustainable basis. Making this happen is critical to building trust and a high-performance culture."
—Richard Floersch, chief HR officer, McDonald's
"Ferracone does an excellent job of describing how executive performance and pay should be aligned. She combines quantitative research with qualitative commentary from those who are on the front lines in determining executive compensation. This combination makes the book eminently readable and a very useful guide."
—Ed Lawler, author, Rewarding Excellence
"By constructing a highly fact-based and thoughtful road map, Ferracone has taken the emotion and fear out of executive compensation decision making. Following the recommendations and analyses contained in this book will enable struggling boards and compensation committees to execute better, and well-performing boards to flourish."
—Anne C. Ruddy, CCP, president, WorldatWork
About the Author
Robin A. Ferracone is founder and executive chair of Farient Advisors LLC and founder and CEO of RAF Capital LLC. Ferracone is a thirty-year veteran of the executive compensation consulting world and has worked at Farient Advisors, Mercer, SCA Consulting, and Booz Allen & Hamilton (now Booz & Company). She has been a senior advisor to executives and compensation committees for over thirty years and has served on both for-profit and not-for-profit boards. In 2003, she received the WorldatWork Distinguished Service Award.
Customer Reviews
Would Have Been 5 Stars Without the Sociology
Robin Ferracone hits the right buttons in her new volume when she describes how to develop of an "alignment" report that can be used by boards and shareowners to ensure executive pay will be judged as "fair." She also interviewed the right people to work in a reasonable degree of wisdom from the perspective of shareowners. However, she falls short in glossing over high executive pay as a potential problem, a "myth."
That's understandable, given that she is a pay consultant. Shouting out that most CEOs are overpaid isn't likely to win clients, since most compensation committee members still look to CEOs and other incumbent directors, not shareowners, to hold them accountable... although that may be changing within a few years due to "proxy access." The book is clearly aimed at compensation committees but shareowners will also find the book useful, once they get past some of the contradictions in Ferracone's pseudo-sociology.
Warren Buffett, who doesn't use compensation committees or consultants at Berkshire Hathaway thinks the best way to effect irresponsible board members and overpaid CEOs is to embarrass them. Nell Minow advises that stories on overcompensated CEOs loudly name all members of the compensation committee.
In contrast, Ferracone hopes that "solid and consistent analysis, not embarrassment" using her "Alignment Model" will lead corporations to "self-monitor and adjust their executive pay practices, and that voluntary reform will obviate the need for additional government intervention and allow government to go back to helping solve other problems in our society, such as issues in education and the environment." Yes, and if companies would just take the necessary steps voluntarily, governments won't have to mandate measures to address global climate change. Don't count on it.
Investors have seen their 401(k) plans reduced to 200½(k) plans. Yet, according to Ferracone, "The notion that America's wealthy people have become wealthier by virtue of seizing the wealth from others instead of creating it is just simply misguided logic."
Due to huge tax cuts, the rich now bring home the largest proportion of income since the 1920s. One out of seven Americans lives below the poverty line, while the top 2% fight to retain Bush tax cuts amounting to $700 billion over 10 years. Upward mobility in the USA is now lower than in developed economies. The only industrialized democracy with a higher concentration of wealth in the top 10% than the United States is Switzerland.
Ferracone focuses her pitch at helping boards find that zone of acceptability, where pay is aligned with value delivered, even in a "say on pay" environment. That's positive, but I can't give her a free pass as myth buster, even though her actual discussions on how to pay for performance are on target.
According to Ferracone, the vast majority of CEOs are not overpaid. Their compensation, adjusted for company size, industry, performance and inflation, has been virtually flat over the last 15 years, only increasing 1.6 times. Productivity gains alone account for all but $400,000 of the increase.
Investors agree. "About 75% of the investors surveyed by the Center On Executive Compensation in 2008 said that they had no real concerns about the levels of executive compensation in the United States." Who are the members of the Center? They are the chief human resource officers of 300 of the large companies. They work for the CEOs! Who were the investors surveyed? They were the top twenty-five institutional U.S. equity investors. Many, like Goldman Sachs, JP Morgan, and Morgan Stanley were the same "investors" who took the financial services sector from 20% of the economy to 40% before the crash, through bets on synthetic derivatives and other nonproductive "investments."
Even after driving the world economy to the abyss and being bailed out, the CEOs of many of these large investment firms still got huge bonuses. However, ask beneficial owners if CEOs are overpaid; you'll get a different response. They didn't put "say on pay" and a requirement to report pay ratios into the Dodd-Frank bill because 75% of the biggest institutional investors surveyed had no concerns. They it because beneficial owners and average Americans are rightfully outraged.
Unfortunately, the American Dream and the personal aspirations of too many CEOs are built around the trinity of wealth, power and fame. These superficial values have become too embedded in the American consciousness. As we strive to resolve the financial crisis, we would do well to examine the need for a constructive shift in values that look to making a contribution to a better world... and that certainly should include well run companies.
Ferracone contends people are angry because a small percentage of companies have distributed excessive pay packages, which she rather arbitrarily defines as companies paying at the 95th percentile or higher... coupled with low performance. Does that mean those who weren't outliers earned their pay?
No, not even according to Ferracone. Many companies say that they align pay with performance, but most don't know whether, in fact, they've achieved alignment. Only 8% of variation in "Performance-Adjusted Compensation" (her trade marked version of compensation after performance happens) is explained by variations in performance, defined as Total Shareholder Return; on the other hand, 30% of variations in Performance-Adjusted Compensation is explained by differences in company size, 11% is explained by industry, and 51% is unexplained. With only 8% explained by performance, how can Ferracone argue the vast majority of CEOs are not overpaid?
In a study Ferracone herself conducted, she found the vast majority of board directors and executives feel as though greater government intervention will not only NOT solve the Alignment issue, but could make matters worse. Is this supposed to be a revelation? Of course they don't want government intervention.
Ferracone does offer some degree of balance in her Epilogue. She notes, "executive compensation should mostly be a matter that is between shareholders and the executives they employ." Government "needs to make sure shareholders have the rights they need to appropriately influence the companies in which they are invested."
Unfortunately, the first right she goes on to mention is the ability to buy and sell shares in a level exchange process. While that's important, the "Wall Street Walk" encourages poor pay alignment, since if the investors who are unsatisfied walk away the more passive investors who are left are unlikely to take action regarding pay abuses.
She adds that shareowners "need to be in a position to elect board directors and vote on key proposals that affect their equity." Good, but I would have felt better if she had inserted the word "nominate" with regard to selecting directors.
Ferracone's firm, Farient Advisors LLC, is one of a growing number of pay advisers that sprang up to meet the needs of compensation committees that don't want to be seen as conflicted by hiring the same firm that simultaneously works for management. That's certainly a step in the right direction, as is Ferracone's substantive discussion on how to align pay and performance. If shareowners, compensation committees and CEOs converge their dialogue around her Performance-Adjusted Compensation that would be another good move.
Great Summer Read!
This isn't your typical dry business expose on executive compensation. In fact, Ferracone has just the right mix of analytics and compelling anecdotal stories that makes Fair Pay, Fair Play hard to put down and a great summer read.
Ferracone writes about the complexities of executive compensation in plain English. With all of the pending legislation around Say on Pay and other financial reforms, it's interesting to understand the intricacies of pay design and the responsibilities of boards of directors in aligning pay and performance.
A must read for anyone making or impacted by executive compensation decisions
This book presents the complexities of executive compensation in an engaging, clear, easy-read manner. It takes a topic that has recently drawn its share of populist outrage and uses analytical approaches to provide reasonable ways to think about executive pay.
The author illustrates real world challenges Boards face in retaining executives and the disastrous results that can occur by "over-paying" (because of fear the executive may leave the company). Ferracone provides uncommon-sense, analytical approaches and reason to decision making. She demonstrates on an inflation-adjusted-basis executive pay is not much greater today than in the past; however, outliers need careful attention as they can become "Black Swan" events that make big headlines.
The book also discusses human elements that go into hiring and retaining the right executives - like the critical role of the executive's passion and drive and how compensation can complement, but not create, such factors within the executive. Overall, this is the best book I have read on executive compensation!
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