Jack Dolmatt-Connell, an executive compensation consultant, wrote a totally on point piece for Forbes on the best way to structure the pay for General Motors’ CEO. Unlike so many CEOs at public companies, Dolmatt-Connell suggests the following (which I wholeheartedly agree with):
The new CEO’s pay should be tied to his or her performance and linked to the company’s recovery, not just awarded to be competitive.
It should be put together the way private-equity-backed firms do it. That is the best model for creating a true risk-reward proposition. It is elegantly simple, featuring modest base salaries and bonuses, significant upside potential via stock options that promote shareholder value creation, little to no downside protection in the form of severance arrangements, and a required personal investment in the company.
Such a pay structure can be easily understood by investors and taxpayers, and it creates a laser-like focus on significantly increasing enterprise value and guiding the company toward becoming a stable, viable and competitive organization that repays the taxpayer. With this plan, shareholders and taxpayers win, but the CEO and executives also win, and potentially win big. If the CEO doesn’t succeed, he or she gets very little, and the taxpayers’ loss is minimized.
The auto companies are not the only firms that should be considering this approach to executive compensation. Let’s hope President Obama’s team considers Dolmatt-Connell’s suggestion on executive compensation. Should GM file for bankruptcy it is imperative a new compensation package be established for all GM executives.