by: Issues: May / June 2004. Tags: Strategy. Categories: Strategy.

What do Google and executive compensation have in common?

What do Google and executive compensation have in common? Aside from the fact that both are hot topics today, the fact is that discussions of Google, the company, and executive compensation, the issue, are being dominated by talk about performance. Even more important is the optimism being generated by discussions of these two disparate topics. These discussions appear to be signalling an end to doing business as we know it.

First, executive compensation, the theme of this issue of Ivey Business Journal Online. For a long time, the idea of linking executive pay and performance seemed a great notion. The problem was, however, that it remained a notion, a half-formed idea in search of an event to make it happen, to make executive pay as we knew it a thing of the past. It was more than the sudden notoriety of stock options, more than the disclosure of embarrassing executive perks, and more than the realization that in 2003, the salary of the average CEO was 400 times that of the average employee, whereas in 1980, it had been a mere 100 times larger. From all the discussions about the excesses, abuses and perhaps, even injustices, of executive pay, emerged a new notion, linking executive pay to performance.

As we now know, this notion has taken root, and executive pay for performance is here to stay. Five of the articles in this issue are on this topic. In one of those articles, consultant Mark Van Clieaf raises an important and often-overlooked question: Are executives, the leaders who are being paid to define and shape a company’s strategy, being paid for work that is clearly operational? Mr. Van Clieaf has some eye-opening answers to this question. In another article, several executives of CalPERS, arguably the first “activist” institutional shareholder, have written an article for Ivey Business Journal Online. In that article, they present an ideal model for determining compensation, one that is strongly linked to performance.

Google, the company, has been performing remarkably since it was founded seven years ago. In brief, not every company going public can claim an operating profit of $570 million or a market capitalization of $30 billion. The company’s co-founders, Larry Page and Sergey Brin, have created a highly informal, casual culture and a company that, like Xerox, whose name has become an everyday verb: “I’ll find it. I’ll just google it.”

Aside from being brilliant, Mr. Page and Mr. Page are quixotic. “Our goal is to develop services that improve the lives of as many people as possible – to do things that matter,” the co-founders write in the company’s IPO filing. Even more shocking – of course, welcomingly so – is the co-founders’ sacrilege. “As a private company, we have concentrated on the long term, and this has served us well,” they write. “As a public company, we will do the same.” Not only do these brilliant, successful entrepreneurs shun Wall Street by going to a Dutch auction to sell shares, but they have the temerity to openly declare that they are in this for the long term, not everyone’s idea of how to make money on the market. Yes, the co-founders’ wish to have two classes of shares raises a flag, but their unabashed optimism and frankness signal the arrival of a fresh, new way of doing business. For the long term.