How Should Lean Executives be Compensated?

With the current outrage over executive compensation (and the debate over whether there should be limits on compensation for companies receiving federal funds), a recent blog post got me thinking about how compensation should be determined.

In a guest post on Mark Graban’s Lean Blog, lean headhunter Adam Zak discusses rewards vs. performance. Adam, whom I know and have interviewed for this blog, points out that a lot of the poorly-performing companies now receiving government handouts have demonstrated little if any commitment to lean principles and practices, such as leadership, value-added activity, accountability, employee engagement and respect for people.

Adam offers a suggestion, which I suspect is not entirely tongue-in-cheek:

In the spirit of LEAN I offer a simple suggestion which can be implemented right now: Every company receiving assistance in the form of our tax dollars MUST send its Chairman, CEO, CFO and all business unit (division, subsidiary, etc.) leaders to an intensive (say 3-5 days, perhaps 10 for the CFO) hands-on LEAN EXECUTIVE training.

I think that’s a great idea, though one unlikely to be implemented.

However, I’d like to focus on the broader issue: At a company pursuing lean, absent government mandates, how should high-level executive compensation be structured? I’m all for rewarding performance, but what metrics should be used? Profit growth? Improvement in stock price? Productivity?

I’d like to hear from those of you who have experience in this area. How have those of you at lean companies structured pay for your top executives? What worked, and what didn’t? What is fair and what isn’t? Please share your experiences below.

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