When it comes to compensation, what metrics do you use?
We don’t have any compensation systems that are hard and fast; they’re based on the value that we create together. And we go through a rigorous examination each year and talk about what that means. [That process] really avoids the subsidization that might occur when you have a typical pay structure like the Hay system, or levels where you are going to be in a range and have an entitlement-oriented mentality.
How does it work in practice?
It’s based on a tremendous amount of input, first from the team that the person works with (peers, direct reports, supervisors, and customers). We also attempt to gather information about the value that person added during the year. The [example] I like to talk about most is the person who runs our payroll department. When was the last time you called payroll and said, “Hey, thanks for getting my check”? Probably never. If it’s wrong, though, I guarantee that phone call is made. We have a person in our payroll department who’s phenomenal, [meaning] we never hear a word about anything out of payroll. And so we make sure that person is rewarded above what he or she might get in the role somewhere else.
What advantage do you have in not having to report quarterly earnings?
[It means] we are not going to be judged by whether or not we hit our earnings target. I’ve talked with many CEOs and CFOs who agree [that] it is the most ridiculous form of judgment. It starts with the media. CNBC will report the earnings of a public company within seconds after they are announced, and then have immediate commentary saying whether or not that company is doing well. How can anybody know if the decisions that were made in the last 90 days to advance the business over the next 20 years are really good or not? And companies would never admit that their decisions are different as a result of that [judgment], but I guarantee you they are. We don’t hesitate on those decisions, because we’re only trying to impress ourselves here.
Any advice for your counterparts toiling in the public arena?
The first advice, which would be very self-serving, is to consider going private. Barring that, [CFOs should be concerned about] the growth in government spending. Because of the continued growth of government and the trend toward overcriminalization of mistakes, the environment we live in right now in the United States may become a much more difficult place to do business in. I know it’s not in the sphere of most CFOs’ responsibilities to worry about things they can’t control, but it’s something they have to be much more knowledgeable about in the future.