Jonathan Yudelowitz
27 November 2007
opinion
Johannesburg — THE furore over the Premier Soccer League (PSL) bonuses again raises the dilemmas of executive remuneration and incentives. An executive's ability to lead, to inspire and act creatively, to learn from failure, not to hide behind policy and plan or others' patronage, distinguishes executives who make a valuable difference from the mediocre and those who prefer things to be safe and familiar.
Share options and bonus schemes are intended to ensure that organisations get the best talent. "Experts" claim to define what and how value will be created, as if the future were predictable.
The PSL executives argue that their bonuses are in line with their incentive scheme. Their arguments may be technically correct, but the public's outrage indicates they are not perceived as such.
Rewarding people correctly is leadership's challenge and its great lever, but this endeavour cannot be linked to a series of measurable events. That may work for a used car salesman who gets an incentive for selling many vehicles, regardless of whether or not they are affordable or roadworthy. In leadership the relationship between input and what actually happens is indirect and non-linear, like good cooking: you throw in a bit of this and that, taste, adjust and at an arbitrary moment something wonderful emerges, but you don't know exactly what interaction between the ingredients produced the taste.
An effective leader is conscious of, and intelligent about, his intentions. Because the future and people's perceptions are neither predictable nor controllable, his intentions probably derive from his experience or imagination. Regardless of his conviction, a leader must be prepared to learn about the consequences of his action. He therefore faces the challenge of maintaining hope amid confusion and uncertainty, delaying gratification and helping others do likewise.
This demands courage of conviction, an ability to think creatively about strategies, confidence to act and humility to learn. Executive salaries are generally high because of these complexities and demands; in order to encourage long-term value-add, executive incentive schemes must also drive these attitudes.
This begs the question as to what creativity and imagination the PSL applied in garnering the Supersport or Absa deals?
Reputation is not directly measurable, because it's an arbitrary process over time, which everyone recognises, but can be neither objectively nor directly measured. Building reputations and brands takes energy and ingenuity invested in the right way over time. By deferring to formulas to justify personal gain, the PSL leadership has damaged its credibility with the public, press and players. They should be penalised, not rewarded, for such short-sighted action.
Formulaic executive incentives assume that success is a simple achievement: like a game where someone has to lose in order for you to win. The PSL leaders claim reward from serendipitous events, for example potential sponsors vying to provide money.
Trevor Manuel's objection to the payment of the PSL bonuses must be applauded. His letter to Absa stated that he was "completely shocked", reminding Absa that "corruption is a criminal offence for both the giver and receiver" (Business Day, Wrong Culprits, October 4).
He focused on ethics and what he believed was deserved. His letter combined the power of his rank, and his personal ethics, pulling no punches, skillfully directing his comments towards Absa, which is in his sphere of influence, rather than directly to the sports body.
Executive remuneration seeks to ensure that executives share risks with shareholders by rewarding them for long-term value-add, the definition of which is not scientific and is often determined by conjecture, belief or conscience of the type exercised by Manuel.
His opinions have initiated a relevant debate calling the PSL executives to account, contrasting with the average board committee's enforcement of formulae and policies which deem subjective opinions irrelevant -- thus reinforcing sterile ways of dealing with remuneration.
Absa scrambled to deny that any bonuses would be paid. They did not show leadership, they did not reframe the situation so that people could make new meanings and learn as we have from Manuel. Manuel put a name to the dissonance between what the PSL executives are claiming and what he and many others feel that they deserve. In so doing he disturbed a pattern of silence of complicity. He demonstrated leadership by making a statement that shows the way forward.
Everyone with leadership insight appreciates that short-term gain often destroys long-term value, investment and capital growth including reputation, culture and development of talent which costs money in the short term. An executive needs room to calibrate how he deals with such challenges, learning over time. He is responsible for the health of the balance sheet but should not be punished if he damages it in spite of honest, well intentioned, but flawed, and misjudged choices.
When it comes to executive remuneration, each situation demands specific resolution of the conflicting variables -- short- and long-term; tangible and intangible; people and performance. This process integrates common sense and principle, there are no fixed answers; it is therefore an art, not a science. Simply rewarding an executive for growth in one variable -- such as in the case of the PSL, turnover or income, is wholly unwise.
It also comes back to the issue of reputation. The PSL executives have traded their individual and collective reputations for pieces of silver.
Jonathan Yudelowitz is joint MD of the consulting firm YSA-Lapin, and author of Smart Leadership.
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