Pay Tied to Performance? What a Concept!

Some years ago, I read where Roger Smith, the then-chairman of General Motors, received nearly $4 million in annual salary and benefits, and while on his watch, the auto giant managed to lose nearly $4 billion. Later, he tendered billions more for the acquisitions of decidedly non-automotive-related entities — such as EDS and Hughes Aircraft — in lieu of investing in the company’s core business. As a result, CNBC labeled him as the worst CEO in the country that year.

When Smith exited GM not long afterward, he was given a seat on the board at soft-drink and snack food conglomerate PepsiCo where he earned a tidy $1 million per. At the time, I wondered — aloud and often — that had my annual review contained such colossal blunders or underwhelming performances, how long would I have held on to my job?

I’m guessing I would have been employed for minutes longer instead of years. And I seriously doubt I would have been proffered a board seat on a Fortune 100 company.

But to be fair to the late Mr. Smith, he certainly was not the only C-level executive over the years to have been richly rewarded for a dismal track record either in the auto industry or Wall Street.

I harken back to this tale of skewed pay vs. performance metrics because I read where the AICPA has just released a book that basically outlines how accounting firms need to remedy uneven compensation plans and policies by linking pay to performance.

The tome, “Performance is Everything: The Why, What and How of Designing Compensation Plans,” argues that CPA practices should adopt a holistic approach that ties pay to performance and implement systems that reward top performers to bolster both retention and recruiting strategies.

After covering the accounting profession for nearly a dozen years, I certainly don’t need to be told that it has been traditionally slow to adopt new paradigms and trends compared to say the legal and medical fields. But equating compensation to results is hardly akin to asking firms to go virtual or expand overseas.

The authors noted that most firms lack written goals in place linking goals to compensation (like the E*TRADE baby, imagine my shocked face at that news!) and about half of firm owners are not happy with their current comp structure. Since compensation is traditionally the largest expense a firm has, it might behoove owners and principals to ensure that the substantial outlay is designed to both motivate and keep their top people, while conversely, weeding out the underperformers.

Otherwise you run the risk of adhering to the failed business models of GM or Wall Street financial firms and I’m pretty sure there’s not going to be any future federal stimulus money for accounting firms.

Very few if any are “too big to fail.”