Compensation Committees: Publicity Shy?

Mark Lonergan, June 23rd, 2011

I met yes­ter­day with the CEO of a mul­ti-bil­lion dol­lar pub­lic com­pa­ny in the Sil­i­con Val­ley, talk­ing about top­ics rang­ing from strat­e­gy to cor­po­rate gov­er­nance. The CEO enjoys a fine rela­tion­ship with his board and had noth­ing but good things to say about them both as indi­vid­u­als and as a group.

Until we got to the Com­pen­sa­tion Committee…

  • Why, the CEO want­ed to know, does the Comp Com­mit­tee con­tin­u­ous­ly chop at the cash and options pro­grams of the com­pa­ny while talk­ing to him pri­vate­ly about the great job man­age­ment is doing? 
  • Why have they signed him (the CEO) to a new mul­ti-year con­tract in appre­ci­a­tion of his efforts, while they have also reduced his cash and equi­ty upside going forward? 
  • Why is it that PE firms and even ven­ture firms can offer bet­ter incen­tives to his key employ­ees than he can as the CEO of a suc­cess­ful and grow­ing mul­ti-bil­lion dol­lar firm?

In the wake of the options back­dat­ing scan­dals here in the Val­ley in the ear­ly 2000s, boards have become increas­ing­ly sen­si­tive to the optics of man­age­ment pay. In the wake of scan­dals at Bro­cade, Mer­cury Inter­ac­tive and Apple, com­pen­sa­tion firms have run a thriv­ing busi­ness pro­vid­ing bench­marks and con­sult­ing ser­vices to the boards they serve. Com­pen­sa­tion pub­lic­i­ty is bad pub­lic­i­ty — and the way to avoid notice is to ensure that you’re in the mid­dle of the pack” on pay.

Pub­lic tech­nol­o­gy com­pa­nies are los­ing some of their best exec­u­tives to pri­vate­ly fund­ed com­pa­nies. Even CEOs are not immune to the trend. Top semi­con­duc­tor execs like Rich Bey­er (Freescale) and Rick Clem­mer (NXP) have demon­strat­ed that a move to pri­vate equi­ty-backed com­pa­nies can be immense­ly prof­itable — with­out incur­ring the wrath of local media or even Con­gres­sion­al scrutiny.

What is a CEO who builds a com­pa­ny and cre­ates bil­lions in the pub­lic mar­ket worth to their pub­lic boards?

…a lot more than they’re being paid now.

Mark Lonergan

Founder & Managing Partner, Lonergan Partners

Specialties: Board & CEO placements


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