Notes From the Field: Risk May Not Be Inherent in Pay DesignsZoom inDownload PDF
One would be hard-pressed not to be slack-jawed over the revelation of fraud at Volkswagen in late 2015. The audacious scale of the perpetration—11 million cars, over 8 years, in 36 countries—was hard to fathom. Bad acting on both this and a lesser scale drives observers of corporate governance to reflexively ask, “What’s going on at the top?”
One of the specific questions one might ask is what could be in such an errant company’s strategic objectives? In how performance is measured and communicated? In how executives get paid? In the shaping of the culture itself? What dysfunction could foster the kind of pre-meditated behavior that has now led to the tarnishing of VW’s great global brands, dismissal of key executives and according to recent estimates, $45 billion of potential liability in the US alone?
Executive compensation is a particular and obvious target of blame when corporate scandals like this erupt. In an “I told you so” sort of way, people will remark, “You get what you pay for.” But decades of experience in working with companies on the design and administration of pay programs suggests pay is not the obvious culprit. The reality of such situations is more nuanced.
Read the full article, which originally appeared in the Q2 Governance-themed Issue of Ethisphere Magazine, by downloading the PDF.