David Larcker and Anastasia Zakolyukina did some research in 2012 for the Rock Center for Corporate Governance at Stanford University. Luckily, it recently made its way back into circulation. The paper, “Detecting Deceptive Discussions in Conference Calls”, attempts to predict the level of deception or truthfulness of CEO communications to shareholders. They found “that the answers of deceptive executives have more references to general knowledge, fewer non-extreme positive emotions, and fewer references to shareholder value. In addition, deceptive CEOs use significantly more extreme positive emotion and fewer anxiety words.”
1) Less truthful CEOs tend to speak in generalities, rather than getting into details. Example: “Everybody knows”, instead of “I know.”
2) Less truthful CEOs tend to use hyperbolic terminology when discussing positives. Example: Using the word “great” instead of “good.”
3) Less than truthful CEOs tend to reference the company or group rather than themselves. Example: “We, instead of I.”
While the research paper indicated there was still more work to be done in this area, it found that it could predict deception with far more accuracy than random selection. In short, it seems as if an astute listener can determine deception with enough confidence to know when a deeper dive is recommended. The results are not perfect, but they are convincing.
These conclusions led me to reevaluate the communications of companies with compensation programs that have failed in the past. Perhaps, it was an equity compensation plan that failed to motivate individuals or drive company success. Maybe, it was a sales compensation program that did not impact revenue or profits. Or, it was a company with a compensation philosophy that claimed to focus on attracting, retaining and motivating world-class talent, while actually delivering none of these. Without writing a 70-page research paper, I have found enough anecdotal evidence to make me think twice. Is it possible that HR and compensation professionals use similar language and techniques when being disingenuous about pay programs? Is it possible that you are guilty of this without even realizing it?
Ask yourself if there has been a difference between how you discuss the plans you like versus those you wish the company would “fix.” Look at your past management presentations. Was your lack of confidence in market data or the recommendations you provided reflected by some of the issues listed above?
The truth is simple. Your employees and executives are both fairly good at seeing through pretext. Unlike many shareholders, your employees are not hoping that you will confirm everything is OK. They are looking for you to provide real information about an incredibly important and complex topic. Can you find examples of these indicators in your programs? Have you seen them in prior positions? If you can detect your own deceiving communications, my guess is that your employees can detect them too.
Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. By now you probably have a copy but if not… “Everything You Do in COMPENSATION IS COMMUNICATION”, by Comp Café writers, Dan Walter, Ann Bares and Margaret O’Hanlon, lays out a practical approach to communications (with helpful worksheets for each step). Dan’s new comprehensive issue brief on Performance Equity will be available late-July 2015. Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.
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