I’m going to venture out of the nonprofit world for a moment to share some lessons from how two major corporations – IBM and Intel – are treating their executive compensation.
Publicly listed corporations are now required by the Securities and Exchange Commission to file a detailed statement (the “Compensation Disclosure and Analysis” or CD&A) describing their executive compensation. These disclosures can be very revealing, not only about levels of pay but also about the thinking behind them.
In my view, Intel’s most recent CD&A (available here: Intel CD&A ) is a model of good compensation governance. It lays out clearly and openly Intel’s compensation philosophy, processes, programs, and results. While Intel executives are very well compensated, especially when the company is successful, executives are treated no differently than rank-and-file employees. There are no special employment conditions or severance arrangements for executives. Executives receive the same benefit programs as all other full time employees, supporting Intel’s objective of providing an egalitarian culture. Reading this document, you get the strong feeling that this is the kind of company you would like to work for, or invest in.
By contrast, IBM’s CD&A (available here: IBM CD&A ) is defensive and arrogant. Instead of simply spelling out what it does and why, IBM begins its statement by patting itself heavily on the back for “putting tremendous effort and rigor into our own executive compensation process over many years.” Next, it points out that its “unique integrated business model” demands “a senior leadership team of unusual depth, agility, and experience.” My, aren’t we proud. . .
After describing how it sets salaries and bonuses, IBM quickly gets to another sore point: executive perquisites, commonly described as “other compensation” in CD&A’s. Here, IBM says that “additional programs (beyond those for employees in general) that are restricted to senior executive participation amount to less than 1% of their total compensation on average . . . and are limited to services with a direct bearing on individual productivity or security.” Come on! What they’re talking about here are things like corporate aircraft. Saying that only 1% of total compensation goes to perquisites is the same as saying “we’re making so much money that our corporate jets get lost in the rounding.”
There’s more of this in the lengthy IBM filing, the message being that although you may not like what we’re doing, it’s serving us well. Maybe it is. But the Intel filing is far preferable, the message being that this is how we see the world of compensation and our rationale behind it, and we think this serves all our stakeholders – including all our employees – well.
What can you learn from reading both proxies? My guess:- Honesty is the best policy. Distortion of intent is obvious and counter-productive.
- An egalitarian approach to compensation – treating all employees within the same general compensation philosophy – is better than making the rich richer.
- Giving stakeholders a say in compensation – Intel is among the first to allow a shareholder vote on executive pay – is better than trying to control everything from within.
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