All Posts in Business Ethics

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CitiGroup’s shareholders, in the non-binding vote made possible by Dodd-Frank, have sent a message to the Board of Directors: Don’t be ridiculous.

In case you somehow managed to miss this story, CitiGroup’s shareholders were given a chance to vote retrospectively (and can I just ask, WHAT???) on whether they approved of the $15M it paid to its CEO, Vikram Pandit.

They … and by “they” I’m referring, not to Irving Glotz of Goleta, California, who owns 143 shares, but to the fund managers who have enough votes to care about, and who presumably have some sophistication in such matters … they expressed dismay that Pandit’s compensation was excessive given CitiGroup’s performance, and that it wasn’t properly structured so as to provide the right incentives.

To be fair, averaged over the last three years the poor guy had to subsist on a mere $5M per year. To be even more fair, we aren’t going to touch on whether, in a company where the average employee gets less than 0.0004% of the revenue, it makes sense for the CEO to get about 0.02% of it or not.

Nope. The question this week is about 2009 and 2010, the years in which Pandit was paid $1 and $129,000 respectively, and whether the shareholders’ complaint about proper incentives is legitimate.

The answer is, no, and the reason it’s no means we need to re-think the whole idea of incentive pay, from the very top of the company right on down to you, your management team, and anyone else in your organization who receives a pay-for-performance bonus.

Why the answer is no is this question: Why would any Board of Directors hire a CEO it has to bribe to do a good job? And yet, in the ranks of a company’s top executives, the need to bribe the top execs is simply assumed.

This isn’t a new insight. Alfie Kohn made the point almost 20 years ago in his groundbreaking book, Punished by Rewards, and Daniel Pink reinforced it in his excellent Drive, providing solid evidence that most people, most of the time, perform their best when money isn’t at stake, and when they have opportunities to achieve great things (his formula is “Autonomy, mastery, and purpose”).

Which leads to my radical, certain-to-be-completely-ignored proposal: Boards of Directors should get rid of executive incentive pay entirely. They should pay a very nice amount of money (the best executives do work more hours and under more stress than most of us, and companies do have to compete for the best of them), although just how nice isn’t something we’ll explore here.

The point is that how much these execs receive should not be tied to any specific performance metric or combination of metrics, and the Board should refuse to hire any top executives who insist on a package like this.

Instead, the Board should hire pinball players … executives who enjoy the game, want to play it, and are motivated by the possibility of winning a free game so they can play again next year.

All that’s left is for the Board to explain, in English (but probably not in terms of specific numeric targets) what success looks like. This conversation should be only minimally about such minor matters as profits and share price, as profits are a rear-view mirror view, and share price reflects the consensus of outsiders as to how persuasive the company is in explaining how great things are going to be.

What the conversation should be about are such topics as marketshare, customer retention and walletshare, new customer acquisition, product innovation, operational efficiency and so on.

It should be about what the Board considers the company’s strategic drivers to be. Once those are established, it’s up to the CEO to run the company in a way that achieves them.

Now it’s your turn. Ask yourself, are you a pinball player? If you could have a conversation about what IT’s strategic drivers are, and then just run things the way you think they should be run, without once asking yourself how any of it might affect your bonus, do you think the outcome would be better or worse than how you do things now?

My guess: Not just better, but more satisfying. Which leads to this suggestion: Approach whoever you report to, and offer this deal — that whatever your current incentive pay is, the company should add half of it to your base salary.

The rest? Suggest it go into the R&D budget. I’ll bet it could use the help.

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|In: Business Ethics|Last Updated:

According to Mike Daisey in his The Agony and the Ecstasy of Steve Jobs, he saw first-hand the appalling conditions in which employees work at Foxconn, Apple’s Chinese manufacturing partner.

Also according to Mike Daisey, making stuff up and presenting it as fact is just fine when you’re presenting a “larger truth.” Or so he said when The American Life, which had broadcast The Agony in the first place on the understanding that it was factually accurate, revealed that, after further investigation, it wasn’t.

I’m not certain of much, but I’m certain of this: If you have to make stuff up to support your “truth,” you’re telling neither the truth nor a truth. Truth be told, none of us has access to the truth. The best any of us can achieve is some confidence that the evidence on which we base our opinions is reliable, the logic we’ve used is sound, and we’re honest in how we explain it.

And so, KJR hereby announces a moratorium on the word “truth” and its derivatives, because whoever lays claim to it is either deceiving themselves or lying to someone else.

Meanwhile, back in not-yet-offshored America, the latest trend in recruiting is requiring job applicants to provide their Facebook password. Or so the story goes.

Unlike Michael Daisey, the AP’s Manuel Valdes and Shannon McFarland reported actual events as they happened — a few factually accurate (or, at least, undisputed) anecdotes. But as someone once said, the plural of anecdote is not data. A few instances is hardly the same thing as a trend.

Which isn’t to say there’s no such trend. It’s to say that we have no more knowledge of whether this is a trend after reading the AP story than we did before reading it, just as was the case with Daisey.

Different reasons, same result.

In the case of Apple and Foxconn, thanks to an investigation by the Fair Labor Association (which despite the name is an industry-funded, not union-funded organization) it appears that Daisey notwithstanding, working conditions at Foxconn, while far from horrific, often violated even China’s lax standards.

Which brings us to a question that’s of personal interest to you.

You don’t have to be the CEO of a Fortune 500 corporation to be responsible for an offshore outsourcing contract. It’s easy to be self-righteous about Apple either (pick one) failing to properly audit its manufacturing partner or knowingly involving itself with a company that treats employees poorly.

It’s a lot harder to avoid being guilty of the exact same thing when the subject is your offshore outsourcer.

There’s a school of thought that says this isn’t your problem anyway. Your job is to contract for the best possible service at the best possible price. The company you’re contracting with is located in another country. It has different laws, different enforcement of the law, a different culture, and different expectations of what a work environment should be.

That makes it all Someone Else’s Problem, doesn’t it?

Legally, it probably does. Ethically? Probably not.

The reductio ad absurdum argument is all you need: Were you to learn that an offshore outsourcer used slaves rather than employees, chaining them to their desks and whipping them if they didn’t write your code while starving them to death because the supply of slave programmers is ample but food is expensive … legally, because that’s how it is in their country … were you to learn this, I sure hope you’d choose a different offshoring partner, even if it cost you more to do so.

If you agree, you agree you have some ethical responsibilities for setting minimum standards for workplace conditions. Now that this is settled, the question that remains is what they should be.

That’s a question that’s easier to ask than to answer. Applying U.S. standards to countries with lower standards of living and different expectations of the workplace truly doesn’t make sense. On the other hand, accepting whatever level of misery is the norm there as your standard is probably the wrong answer, too.

What’s probably the right answer is to spend some time there, talking with the people who do your work, to gain some sense of what they would find comfortable … not luxurious, not barely tolerable, but comfortable. You’re looking for, not physical equivalence to U.S. working conditions, but emotional equivalence.

That’s a complicated proposition. I’d love to offer a simple, clear solution instead, but as usual the world is too complicated for a simple solution to work.

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