{"id":2499,"date":"2015-01-12T11:01:52","date_gmt":"2015-01-12T16:01:52","guid":{"rendered":"http:\/\/www.trustacrossamerica.com\/blog\/?p=2499"},"modified":"2015-01-12T11:01:52","modified_gmt":"2015-01-12T16:01:52","slug":"has-ceo-pay-killed-trust","status":"publish","type":"post","link":"https:\/\/www.trustacrossamerica.com\/blog\/?p=2499","title":{"rendered":"Has CEO Pay Killed Trust?"},"content":{"rendered":"

\"TAA_R2_EDIT-CS3\"<\/a><\/p>\n

Has CEO compensation destroyed trust in corporate America?<\/strong> <\/em><\/p>\n

Will the real root cause of the destruction of trust please stand up. While many blame Wall Street and the financial meltdown in 2008, trust began to gasp for air many years earlier.\u00a0The financial meltdown just\u00a0added a nail to the coffin.<\/p>\n

Trust had a quick\u00a0descent \u00a0in the 1990’s with the explosion of stock option grants and an increased focus on shareholder value. In fact, By 2000, stock options accounted for more than half of total compensation for a typical S&P\u00a0500 CEO.<\/p>\n

Over the 14-year 1992-2005 time period, the average US S&P 500 company awarded over \u20ac1 billion worth of<\/em>
\noptions to its executives and employees (or \u20ac500 billion across all 500 companies).\u00a0Moreover, the average S&P 500 company transferred through options approximately 25.6%\u00a0of its total outstanding equity to its executives and employees (Murphy, Jensen and Wruck (2011).<\/em><\/p>\n

And lest we forget\u00a0the\u00a0accounting scandals like Enron, Sarbanes Oxley, pay for performance, options backdating and Dodd Frank, perhaps sealing the fate of trust for good. Unfortunately, regulation is punitive and does little if anything to create value or trust<\/strong>. For those interested in read more about the global history of CEO compensation and it’s impact on trust,\u00a0this is an excellent paper<\/a>.<\/p>\n

A more recent July NY Times<\/em> article written by Eduardo Porter called Motivating Corporations to Do Good<\/a>\u00a0contains the following:<\/p>\n

In 1993, some 20 percent of executive compensation was based on stock, according to Lynn Stout of Cornell Law School. Today, equity accounts for about\u00a060 percent of the remuneration<\/a>\u00a0of executives at companies in the Standard & Poor\u2019s 500-stock index. With so much money tied up in stock options and the like, it is not surprising that executives will do almost anything to give their share price a boost regardless of what costs this might incur after their options have vested. <\/em>(and regardless of how much trust must be compromised along the way)<\/p>\n

And finally, as described in this September article in The Week<\/a>, written by James Pethokoukis, most US companies and their CEO’s are stuck in the short-term and quarterly earnings mentality, again both killers of trust.<\/p>\n

The Silver Lining<\/strong><\/em><\/p>\n

In a recent blog post called The Good News About Leadership<\/a>\u00a0 Bob Vanourek describes more\u00a0enlightened versions of capitalism <\/em>that are\u00a0emerging and go beyond the \u201cmaximize shareholder value\u201d mantra that is becoming increasingly obsolete and discredited. He references this article in McKinsey Insights called Redefining Capitalism<\/a>.<\/p>\n

Have We Yet to See Any Examples Of\u00a0CEOS Embracing a New Way of Thinking about Trust?<\/em><\/strong><\/p>\n

Yes indeed! I wrote about the Top Ten CEO Trust Stories of 2014<\/a> in this recent post. It includes examples\u00a0from enlightened CEOs like Howard Schultz at Starbucks and Capital One’s Richard Fairbank.<\/p>\n

Perhaps there is still a ray of hope for trust to make a comeback in corporate America, but it won’t be through increased regulation and mandatory rules. After all, trust is voluntary. \u00a0Let’s see what happens in 2015.<\/p>\n

Our library of our own award-winning books and many others on building organizational trust can be accessed here<\/a>\u00a0and provide a good starting place for learning more about the subject, especially if you are an enlightened CEO, or want to be one.<\/p>\n

\"Print\"<\/a>\"ND\"914Trust<\/a><\/p>\n

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Barbara Brooks Kimmel<\/strong>\u00a0is the Executive Director of\u00a0<\/span>Trust Across America-Trust Around the World<\/a>\u00a0whose mission is to help organizations build trust. She is also the editor of the award winning\u00a0<\/span>TRUST INC.<\/a>\u00a0book series and the Executive Editor of\u00a0<\/span>TRUST! Magazine<\/a>. In 2012 Barbara was named \u201cOne of 25 Women Changing the World\u201d by Good Business International.<\/span><\/p>\n

Copyright 2015, Next Decade, Inc.<\/p>\n

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