For more than a generation, institutional investors have preached the gospel of aligning executive compensation with performance. When results disappointed, we redoubled our efforts. As a result, we have gone from preferring cash to options to performance-vesting options to restricted shares. We have researched vesting periods and grant dates. We have prompted executive pay plans that include salaries, annual incentives, and long-term incentives. We have created a veritable pawn shop of compensation-speak—Golden parachutes, golden coffins, and golden handshakes—and asked proxy voting firms to judge companies by how well they respond.
If, as the aphorism says, insanity is doing the same thing over and over and expecting different results, then we institutional investors are arguably insane. And maybe so are the boards that have fallen grudgingly into line.
