Compensation Professionals - Sunlight...Disinfectant or Growth
Editor's Note: In today's Classic, Dan Walter unpacks a famous quote and examines the truth of its common application. Can sunlight be - in reality - a double-edged sword?
Justice Louis D. Brandeis once wrote the following:
"Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."
I often hear people restate the comment about sunlight. They use it as a defense for all sorts of things, including pay transparency and disclosure. It may be that all of these perspectives were factually accurate at one time, but in today’s world perhaps we need to reconsider.
"Publicity is justly commended as a remedy for social and industrial diseases.” I think we can all agree that reality TV, political ads and even terrorism are about publicity. None are curing the diseases of our society. Publicity is often at the heart of our current social issues. While it does give a voice to many who need one, it also gives false power to those with loud voices, deep pockets, ridiculous lives and axes to grind. Most of us know that we need to take these voices with a grain of salt, but it is nearly impossible to keep them from shifting our thought processes. When we see compensation data in the headlines we all wonder where the numbers came from and who put them together.
“Electric light the most efficient policeman." I don't really need to provide examples here. Just imagine replacing even one of your policemen with a streetlight. Of course, streetlights are useful in reducing crime, but in the end you don't want to call 911 and have a bright light come knocking on your door. Compensation professionals need to serve as the local police force. When we don’t, federal officers come calling.
This leads us to…
“Sunlight is said to be the best of disinfectants.” This brings us to the heart of Say on Pay, Proxy Disclosures, and Summary Compensation Tables. The belief is that like sunlight on a moldy windowsill, pay disclosure will clear up the many real and perceived issues about executive compensation. Even Justice Brandeis hedged his bets on this one. He didn't take credit for this concept, perhaps because he knew it was genuinely flawed.
Sunlight is a key ingredient for life. It makes things grow. Put a plant in dark closet and put the same plant out in the sun. The one in the sun will grow faster, especially if you water it. Pay disclosure is our sun. Media coverage and shareholder advisory firms are our water. Of course, there is always more than enough fertilizer. The explosive growth in executive pay has coincided with our attempts to control it.
For the skeptics out there, I point you to a paper written by Kevin J. Murphy of the University of Southern California - Marshall School of Business. In doing some research, I came across his work and found it very interesting. He, like a good compensation professional, discusses the complexity of executive compensation, but finds direct causality between attempts to control pay and the growth and evolution of the same. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2041679.
Dan Walter is a CECP and CEP and works as Managing Consultant for FutureSense. He is passionately committed to aligning pay with company strategy and culture. Dan is also a leading expert on equity compensation issues and has written several industry resources including the one-of-a-kind Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.
Posted by Ann Bares on 05/01/2019 at 08:48 AM in Compensation Communication, Executive Compensation, Regulations & Public Policy | Permalink | Comments (0)