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Bill George

Harvard Business School Professor, former Medtronic CEO

‘The Takers’ Part II – The Executive Compensation Uproar

Two weeks ago President Bush had the audacity to say that executive compensation should be based on “pay for performance” and long-term incentives. As reported by the media present at this event, the business executives in his largely Republican audience sat in stunned silence. No one spoke in support of his proposal.

As often as I disagree with the President in matters of foreign affairs and government budgets, I think he is right on the money here. Who can argue with “pay for performance”? Only the “takers,” I guess. Why didn´t the business community rise up in support of the President on this point? Were we too focused on getting whatever we could take from the system?

The President was simply stating a basic principle of capitalism: those of us engaging in capitalistic businesses get rewarded for creating value. In my experience, those capitalists that create long-term value for their organizations and their shareholders claim the greatest gains. Think of Bill Gates, Warren Buffett, the late David Packard, Michael Dell, and Oprah Winfrey.

Are we so enamored with people like Bob Nardelli, Bill McGuire, Donald Trump, Marc Rich, and Michael Milken and their enormous wealth that we are prepared to abandon even the most basic principles of capitalism? If we are, I predict that capitalism is doomed. We will have regressed to Russian-style capitalism: take all you get for yourself legally, and then take whatever else you can get illegally, and ship your spoils out of the country. Be sure to keep your passport with you and your private jet available at all times so you can get out of the country before the law catches up with you, as it did with Jeff Skilling, Bernie Ebbers, Dennis Koslowski, Richard Shrushy and their compatriots.

It´s about time the rest of us who care about the future of capitalism speak out on behalf of “pay for performance” and not leave the President standing alone.

Let me know your views on these thoughts.

P.S. If I have offended any of you who are “takers,” please look in the mirror before responding.