I have a brother with 20:15 vision. For those of you normal humans, this means he can see things clearly in the distance that the rest of us see as only a blur (if at all). I have a sister with, to be kind, worse vision. Like many people, her vision imperceptivity worsened over decades. She began to think it was normal to see street signs only as she came close to them. It did not seem odd that she depended on her experience rather than her senses. And, simultaneously, most of her friends were also slowly losing their ability to see into the distance so they didn’t notice anything changing.
Perhaps the world of executive compensation and all of our friends have slowly become nearsighted.
A recent New York Times infographic does a good job at showing the short-term cycle linking shareholders, proxy voting, pay practices, trading and information. At first glance, the graphic seems fairly expected. However, when we look back on how things were ten or twenty years ago, the cycles are clearly tighter than ever.
It would be so easy if we could blame this growing focus on a single entity. Doing so would allow us to come up with an elegant solution. The truth is that everyone in the loop is contributing to the problem. People want things fast. Everyone works hard to satisfy this desire. People want things accurate and the shorter cycles reduce the impact of incorrect guesses and provide results that are more inline with expectations. But, as we strive to meet turn-round times and make better predictions, we may have lost some of our ability to see and plan for the long-term.
It seems to be a rare company that considers five or seven years as an expectation for a long-term incentive. A few decades ago stock options were regularly granted with 25-year or longer terms. Corporate growth and shareholder investments were often measured in decades. But, that was also a time when a telephone looked essentially the same for about 50 years. It was a time when you would wait 10 years to watch every episode in a TV series (rather than binge watch 120 episodes over a long dark weekend.)
In many cases we, like my near-sighted sister, have adapted well to our lack of long-term vision. Heck, my sister hasn’t been in an accident and most companies actually do a fairly good job at aligning pay with performance. But, our inability to focus on the goals in the distance may also be driving the hyper-speed growth of executive pay that often aligns with similar speed in the growth of company values.
There is one real and seldom mentioned risk. When operating at high speed in smaller and smaller loops the effect of making a mistake can be catastrophic. We are on a highway that is increasingly crowded filled with faster and faster vehicles. If something goes wrong, we have given ourselves very little room to navigate to a safe space. At some point in the not so distant future, truly successful companies may be those with executive compensation professionals with 20:15 vision and plan for how to navigate even the most unexpected events ahead.
I am interested in hearing how your company is dealing with the speedier expectations and lessening ability to focus on the long-term issues that seldom make into the current loop.
Dan Walter is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture. Grab a copy of Dan’s new comprehensive issue brief, Performance-Based Equity Compensation. Dan also cowrote “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And believe it or not, he has co-authored “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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