{"id":349,"date":"2010-02-11T08:00:00","date_gmt":"2010-02-11T13:00:00","guid":{"rendered":"http:\/\/www.intuitiveinvestor.com\/web\/?p=349"},"modified":"2018-08-21T09:16:11","modified_gmt":"2018-08-21T13:16:11","slug":"imagine-pay-matching-performance","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/02\/11\/imagine-pay-matching-performance\/","title":{"rendered":"Imagine pay matching performance"},"content":{"rendered":"<p><span style=\"font-size: 16px;\">That scion of crazy executive compensation, AIG, today announced that it is changing the way it awards pay to its top executives.\u00a0 Specifically, the Company is ranking employees on a scale from 1 to 4.\u00a0 That rank will be based upon a comparison to other employees and upon the amount of pay already received, including bonuses.\u00a0 It sounds as if the company will be compensating its employees based on a benefits versus costs analysis.\u00a0 That is, the benefit the employee provided, based on the 1 to 4 ranking, relative to the costs of the employee, or their total pay.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Additional details of the plan are:<\/span><\/p>\n<ul>\n<li><span style=\"font-size: 16px;\">Only 10% of employees are allowed to receive the top ranking.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">The next 20% are eligible for the 2 ranking.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">The next 50% are eligible for the 3 ranking.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">While the remaining 10% of employees who consistently receive a 4 will be fired.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 16px;\">I am all for an effort to compensate executives based solely on their\u00a0performance.\u00a0 However, I have several concerns.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">One is that compensation cannot simply be evaluated on a\u00a0relative basis, the 1 to 4 scale.\u00a0 Effectively, this is like grading an employee on a curve.\u00a0 Yet, there is such a thing as an absolute quality of work, too.\u00a0 Imagine hypothetically that all of AIG&#8217;s top 200 executives perform identically.\u00a0 The system as described would automatically punish 10% of those employees because the system requires that 10% be ranked a 4.\u00a0 Such a system may in fact end up terminating quality employees in the real world.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">My second concern is the absence of the time dimension in the compensation discussion.\u00a0 Ideally compensation ought to be awarded matched to the length of time it takes for a decision&#8217;s benefits to unfold.\u00a0 For example, say an executive makes a decision about lowering the minimum credit quality threshold for mortgages to be underwritten by a business.\u00a0 The proper evaluation of that strategy is not how much business is generated over the next year, or maybe even two years, but over the length of time of the impact of the decision.\u00a0 Clearly this requires discretion on the part of the supervisor evaluating the decisions.\u00a0 However, a way around this is to ask the person making the decision at the outset what the expected timeframe is for receiving full impact from their decision.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Whatever the ultimate details of AIG&#8217;s compensation plan, I applaud their movement toward a plan based on job performance and not just tenure.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>That scion of crazy executive compensation, AIG, today announced that it is changing the way it awards pay to its top executives.\u00a0 Specifically, the Company is ranking employees on a scale from 1 to 4.\u00a0 That rank will be based upon a comparison to other employees and upon the amount of pay already received, including [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-349","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/349","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=349"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/349\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=349"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=349"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=349"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}