Authored by Mickey North Rizza
Joann Lublin wrote a great article in The Wall Street Journal on the growing number of U.S. companies that are limiting the upside for top leaders in down years for stock prices, restricting certain compensation when total shareholder return is negative. In the article, A Tougher Stand on CEOs with Bad Returns, Lublin points out “fifteen big and midsize businesses have capped incentive-plan payments since 2006 and seven of these have been since 2011.” Irving S. Becker, of Hay’s U.S. Executive Compensation Practice estimates that 10% of all public U.S. companies pinch executive pay due to a negative return and he predicts nearly 40% may do so by 2015. The point is accountability is critical in business.
Putting this in perspective with respect to a CPO or VP of Procurement, Sourcing or Supply Management, “accountability to business outcomes” might mean, as an example, these leaders would be paid a base salary, but a bonus might be based on their ability to deliver cost reductions and containment of cost increases, or their ability to impact working and fixed capital positively and work closely with suppliers to mitigate revenue risk of required supply. This type of “pay for performance” structure is not new to the business world, but rarely utilized for Procurement, Sourcing or Supply Management.
Perhaps this board level approach to the C-level executive team will have a trickle down affect and be the start of a new compensation platform for Vice Presidents and Directors across the company in the coming years. For now, let’s hope Procurement, Sourcing and Supply Management executives can start to use this change as way to drive greater results and tie their accountability to achieving the business requirements.