Pay Czar Ideas for Executive Pay

Tweet

The Administration Pay Czar has a new idea to pay top executives using stock options (up to 50%) that cannot be excited for several years. The rational is that if their pay is linked to the success of the company they will be less likely to make risky decisions or to take too many risks. Their thinking is that the companies will be moving along at a steady pace and not take any risks. If we look at the electronic industry and go back 40 - 50 years we had a new invention – the transistor radio small enough to carry around with you. Then someone at Sony came up with the idea of a “walkman” a radio with a Cassette Tape Player in one unit. As the executive do you take a chance on this new idea or do you stay with the tried and true transistor radio. After all there were not many record labels on cassette tape and records were selling like crazy. If the “walkman” were not a success you might lose money in the future. What would have happened if Bill Gates had not taken a risk and marketed Windows Operating System? What would be the most popular vehicle if Lee Iacocca had not taken a risk with the Mini Van? What about Apple and the I pod? Without executives taking risks in making decisions where would we be? In the free market, people are rewarded for taking risks, and lose when they are wrong. When you take the element of risk out of business you have to settle for mediocrity.