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17 Dec 2009

Harvard Business School Faculty Critique Executive Compensation

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BOSTON — As the end of the year approaches and Wall Street bonuses are about to be announced, U.S. lawmakers and the public are voicing concerns about executive compensation. Harvard Business School faculty members Jay Lorsch, Rakesh Khurana, and Brian Hall recently co-hosted a conference (PDF) to examine the nature and causes of the top management compensation problem in the United States.

The HBS faculty members convened a group of more than 30 influential thought leaders, including lawyers, consultants, senior executives, and other experts for the two-day event, which examined the nature of the compensation problem, compensation as a motivator, the nature of compensation plans, and ideas for change.

"The purpose of the conference was to enable our faculty to interact with various professionals and directors who are on the firing lines making compensation decisions. Our discussions stimulated our thinking on a topic that, as each day's headlines suggest, is still a burning issue for Americans," said Jay Lorsch, the Louis Kirstein Professor of Human Relations at the Harvard Business School.

Discussions centered on issues that were company-specific and those that affected society as a whole. At the company level, participants focused on three themes: A push to simplify compensation plans, the need to focus on long-term performance, and the need to improve alignment between pay and performance. In the broader societal context, the discussion was centered on "fairness" because of the increasingly skewed income distribution in the United States and the public's disapproval of excessively large executive paychecks, especially in light of the recent financial crisis.

A summary of all four conference sessions titled, "Executive Compensation: A Broader View" can be found on the HBS website (PDF).

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