The cops are coming for my adversary…I should be happy

Posted by Marc Hodak on July 2, 2007 under Executive compensation | 2 Comments to Read

Instead, I’m concerned.

The adversary is Towers Perrin, the embodiment of everything that is wrong with compensation governance. Towers’ outmoded, feel-good HR model places too much emphasis on “competitive” pay and too little on aligning managers and owners. They’re responsible for entire HR bureaucracies focused on rewarding strategies instead of results. They don’t offer shareholder-friendly incentives.

The government suspects this failure is the result of the corrupting influence of managers who resist the accountability of such incentives, but I believe that suspicion is misplaced. No, Towers fails to offer useful incentives because their clients, including the most conscientious boards of directors in America, don’t want them. Useful incentives require innovation, and boards are not in the mood. Instead, HR firm clients rely on their consultants’ experience to give them an incentive plan just like everyone else’s. No one will pay Towers, or Mercer, or Hewitt, or Watson Wyatt–what you might call Big HR–for any incentive plan that will differentiate their company, so Big HR doesn’t develop them.

Consequently, Big HR is intellectually stunted with regards to leading edge, value-focused incentives. Their consultants are uninformed in modern financial economics–the main vein of research relating incentives to shareholder value. Their analysis is schlock, based on reticent hypotheses, yielding conclusions of questionable validity. To the extent they keep up with developments in incentive compensation at all, it’s by stealing the ideas of people who bridge the gap between research and practice. Some of us have a foot in academia and a hand on the pulse of actual clients. Firms like Towers Perrin have both arms around their clients, and legs, furiously shaking to loosen up some more dollars to meet their shareholders’ quarterly expectations.

So, I should be happy that Towers is feeling the heat of a congressional committee seeking all of their sensitive client information. But, I’m not. Perhaps it’s my sense of history. Perhaps it’s because, for all their faults, Towers Perrin doesn’t scare me.