The Past, Present, and Future of Executive Compensation

What's one misconception about executive compensation that still surprises you to hear today?

I think in the public realm, it would be that the way compensation gets reported, especially in the general press, is the numbers that get published in a proxy filing are taken as givens.

They're taken as if even often the press will say, oh, she took home a $10 million paycheck running XYZ company.

And usually that's not the case.

It's really there was a paycheck.

It was a salary.

It's probably very healthy.

Anybody would want it.

But the rest of it was variable.

And a lot of it, the value of it, we won't know for years.

And it may be worth nothing, or it may be worth multiples of what the press is picking up.

And I think in the general domain, people don't really understand that executive compensation is highly variable, contingent, and has a long tail on

it.

As executive compensation evolves, what are some of the ripple effects it has on the broader population of these companies?

I think that one of the central arguments for issues that we're always dealing with in executive pay is this sort of difference between the owner or the principal and the agent, i.e. the leaders or the executives, the employees of the company.

And one of the ideas, certainly that again spurs from technology and other venture capital-backed sectors, is what is the magic of ownership and can it be applied all the way out? So it's very typical, has been typical, that in startup companies, everybody gets equity.

Initially, go to the 70s and the 80s, that was in lieu of cash.

So people were working on a shoestring.

for the promise of what that equity might turn into, which could again be zero if it belly flopped or could be very substantial.

Today, because this venture capital sector is so robust and deep, you don't see the same sort of trade-off.

In other words, cash compensation is roughly competitive with mature companies that are already public or private but well-developed.

And the idea of equity broadly still applies.

Most companies, though, and I think this is an interesting trend, even those who are mature and try doing equity broadly, that is to all employees, maybe funding it into 401ks, which became problematic for companies, or just making initial grants and then maybe subsequent grants, at some point backed away from that.

And I think during downturns, down cycles, weak performance periods, the broader population would value cash more than equity.

And so that's often led companies to back away from it.