Kevin Meyer

The absurdity of executive bonuses.

Maybe pigs really can fly. Maybe hell will freeze over. Today I finally read something in the Wall Street Journal that didn't make me feel like I was trudging through some never-ending serialization of one of Ayn Rand's

doorstops

novels. Henry Mintzberg's attack on the absurdity of executive bonuses is enough to make me renew my subscription to the WSJ for another year.

Mintzberg is refreshingly blunt. (In fact, he sounds suspiciously like our very own Bill Waddel):

These days, it seems, there is no shortage of recommendations for fixing the way bonuses are paid to executives at big public companies. Well, I have my own recommendation: Scrap the whole thing. Don't pay any bonuses. Nothing.

This may sound extreme. But when you look at the way the compensation game is played—and the assumptions that are made by those who want to reform it — you can come to no other conclusion. The system simply can't be fixed. Executive bonuses — especially in the form of stock and option grants — represent the most prominent form of legal corruption that has been undermining our large corporations and bringing down the global economy. Get rid of them and we will all be better off for it.

Mintzberg isn't the first kid on the block to point out that bonuses might not be the ticket for eliciting outstanding performance. (Check out Dan Pink's talk here, John Hunter's thoughtful posts here, and Mark Graban's take on it here.) He's also not known for his expertise in lean. But his analysis of why bonuses are just plain wrong could come straight from the lean manager's playbook.

As he points out, bonuses are based on several faulty assumptions, among them that the CEO, with a few other senior executives, is primarily responsible for the company's performance. And this assumption is poison to a company:

In something as complex as the contemporary large corporation, how can success over three or even 10 years possibly be attributed to a single individual? Where is teamwork and all that talk about people being "our most important asset?" More important, should any company even try to attribute success to one person? A robust enterprise is not a collection of "human resources"; it's a community of human beings. All kinds of people are responsible for its performance. Focusing on a few—indeed, only one, who may have parachuted into the most senior post from the outside—just discourages everyone else in the company.

Kevin and Bill have written eloquently and often about employees being more than just a pair of hands. A lean company engages their hearts and minds as well. It's refreshing to see Mintzberg addressing this human element -- and the effect bonuses have on real people -- in the ongoing debate over compensation.

Actually, Mintzberg thinks that bonuses do have an important role to play:

Actually, bonuses can serve one purpose. It has been claimed that if you don't pay them, you don't get the right person in the CEO chair. I believe that if you do pay bonuses, you get the wrong person in that chair. At the worst, you get a self-centered narcissist. At the best, you get someone who is willing to be singled out from everyone else by virtue of the compensation plan. Is this any way to build community within an enterprise, even to foster the very sense of enterprise that is so fundamental to economic strength?

Accordingly, executive bonuses provide the perfect tool to screen candidates for the CEO job. Anyone who insists on them should be dismissed out of hand, because he or she has demonstrated an absence of the leadership attitude required for a sustainable enterprise.

Community, sustainability, leadership: this sounds suspiciously like lean management. Let's just hope that someone in the C-suite is paying attention.

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