A pleasant morning sitting in the backyard. Reading the newspaper. My wife notices an article that explains that people are upset because of the large sums paid in compensation to the new dean of a medical school. It’s a public school, so people feel that the person shouldn’t be paid so much.
My wife asks for an opinion. She does this because she knows otherwise I will wander off to watch TV or drink a beer at 10:00 a.m. in the morning. But I pretend that she actually wants to know what I am thinking.
I explain that I can’t offer a good opinion until I know what problem the trustees of the medical school are trying to solve. Do they want to continue to be considered a world-class educational institution? Or do they want to keep the status quo and just get this class through to graduation? Because if they want to continue to be considered a world-class educational institution, they are going to have to pay big money to get the kind of person into the lead spot that will attract the top students, who will in turn likely go on to be the top doctors, who in turn will probably give a lot of money to the alumni association. It’s the star system. Doesn’t matter whether she / he is a good educator or not. Just matters that they can put the right butts in the right seats.
And if this results in millions of dollars over the long-term for the school? Assuming that you can calculate the cost-benefit analysis in terms of the time-value of money, then it probably means that the person didn’t get paid enough. The market determines the price of compensation (for all jobs, from clerk to CEO). But the market is a remarkably bad predictor of future economic value. The market can value a product or an asset effectively (most of the time), but it is always making broad assumptions about value that turn most compensation strategy into roll-the-dice exercises.
So my first opinion was that there was at least an even chance that the new dean didn’t get paid enough. And this falls into line the classic conservative political thought process, that stars are worth at least as much as they make because they are a rising tide that raises all ships. It’s the “rich get richer” concept.
But as she was about to berate me for being a boorish capitalist pig, I pointed out that there was an equally powerful argument that the new dean was paid too much. It is highly unlikely that the dean’s employment contract stipulated clear performance criteria that were directly linked to the needs of the organization, including its strategic plan and the specific needs of the culture for a leader in the organization. The trustees probably picked a few items that they thought the “star” would agree with and which they could trumpet to the alumni, and then they crossed their fingers and prayed that whatever they chose as the measurements lead to what the organization really needed. In that case, he was paid way too much. The dean’s compensation is a bet on the come that the cool half-a-million ante payment was the ticket to big winnings.
The question has to continue to be: where is HR? Why isn’t HR changing the way that people are paid, trying to get closer to pegging a person’s compensation to their value to the organization, tying a person’s performance criteria to the strategic needs of the organization?
The things that drive people nuts about organizations are all HR problems, or should be. While HR is running around figuring out how to kiss the loudest whiner’s backside, the modern corporation is in serious need of guidance on how to connect people directly to the direction of the organization, to reduce the cost of operations by picking the right individuals within the organization and training the hell out of them, by figuring out how to effectively hire in adjacency, get the strategic plan in line with talent market realities, and really making talent at the center of the enterprise.
Gibson said “The future is already here. It is just not evenly distributed.” Let’s hope that is true. And let’s hope that there are CEOs out there who understand that there are many HR executives who want to have the chance to add this kind of value, and get the snot knocked out of them every time they try.
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