Motivation

The companies paying top-managers depending on results, probably, are mistaken. The binding of compensation to financial indexations does not give an effect desired, the Swiss researchers confirm.

Whether methods of indemnification of top-managers depending on the results reached  actually are good, employees of institute of organizational and administrative sciences at the Zurich university Katya Rost and Magrit Osterlo have become interested . They have decided to check up their efficiency due to statistics. They managed to analyse financial indexations of hundreds thousand companies. It has appeared that motivation on result causes more harm than good. The binding of compensation of top-managers to financial indexations does not give a desireable effect, researchers write in "Management Fashion Pay for Performance" work. Moreover, appying systems of remuneration for result leads in due course to decrease in companies efficiency.

«We at all do not assert, that to top-managers pare paid too high or too low, - one of authors of research Katya Rost speaks. - we are interested just how much the principle is comprehensible». And whether really it deserves that attention which is given by advisers, press and practice.

The companies began to pay managers for result, apparently, from sensible reasons, write Rost and Osterlo: isn't it reasonable to mark out the concrete individual contribution to a common cause and by that to motivate on the further achievements? But by the present moment the concept of a payment for result has taken position of a dominating paradigm, Rost says. Everybody learned how to get benefits out of it: top-managers, and advisers, and researchers. However people who agree with the results of Rost and Osterlo, there nevertheless are, and both in academic, and in a business environment.

More for the successful

Rost and Osterlo also have influential opponents. The report (for 2007-2008) of international consulting company Watson Wyatt (which specialises on the analysis of compensatory packages for top-managers) is called «Debunking executive compensation myths». Its main thought - the principle of payment for result is so successful, that it is applied with pleasure in many countries.

Main argument of the consultants - on their information the payment of top-managers hardly correlates with financial indexations of their employers. The companies showing excellent results, pay to top-managers on 75 % more (than less successful), they affirm. And the companies that give managers more shares reach the best results.

Stephen van Putten, one of the authors of Watson Wyatt report and the co-author of book "Myth and Realities of Executive Pay, 2007", answering questions of "Vedomosti", has indicated some problem places in conclusions of the Swiss scientists. First, it is synthesis of several earlier conducted researches, secondly, the majority of the academic works, including what quote Rost and Osterlo, use incorrect definition of paying top-managers. The large part of compensation of the general director is made by shares and options, speaks van Putten. In the academic researches possible indemnification of the general director is compared to financial indexations for last periods of time. And actually it is necessary to look at the sums which the general director receives in practice.

Everything, that Watson Wyatt report proves, - the successful companies pay to the top-managers more than the unsuccessful. But between motivational schemes and fiscal effects of the companies it does not establish any relations of cause and effect, speaks Rost. Really, a relations of cause and effect we could not prove, agrees van Putten.

It is not enough data

Indemnification of top-managers and members of the boards of directors entering into bodies of an operational administration of the company, should be adhered to fiscal effects, Svetlana Borodina, the director of the Russian office of rating agency Standard and Poor's speaks. «For us it is important, that indemnification appointment procedure was transparent, objective and independent. Ideally these decisions should be made by committee on compensations of a board. But ideal cases in our country are no real. Incomes of top-managers are opened by only few companies. From several Russian power companies Standard and Poor's receives the materials of boards of directors describing systems of motivation, but only subject to conditions of confidentiality», - says Borodina.

The effect is not investigated

Depending on a situation we recommend our clients to adhere separate elements of indemnification of top-managers as to accounting (a gain, profit), and to market (capitalisation, a market share) indicators, says Xenia Kamenskaja, the manager of department on Human Capital of international auditor-consulting company Ernst and Young (E&Y). But tracing effect of any motivational programs, as she said, is a question extremely difficult as improvement of indicators of top-managers work can be caused by variety of factors.

Ernst and Young seldom receives inquiries about realisation of performance estimation of motivational programs. More often such projects are realised abroad. The Russian companies, according to Kamenskaja, address E&Y advisors with such questions: how to involve, how to keep, how to interest top-managers. All these problems in our country are decided by substantial growth of their indemnification. But demand for advices on just how is it necessary to pay top-managers or pay less, guys in E&Y do not observe at all. Such is the Russian market. Interest to technologies of HR has appeared here much later, than business. Probably, from here appears such structure of demand, explains Kamenskaya.

«Sensible grain in the Swiss research, undoubtedly, is present, - Alexander Zabuzov, the partner of services department in staff management of Deloitte in the CIS speaks. - but I  concern with suspicion researches in which secondary data is used». Besides, the basic part of figures which has appeared at the command of Swisses, concerns the period with 1980 to 1991 «If they could include in research the statistics up to 2006 and the tendency would be saved, I would take off a hat», - speaks Забузов.

With the psychological effects listed in the article, Zabuzov too did not agree. A life - a thing nonlinear. For the majority of people the motivation is important both external and internal. The system of fixed fees is viable, but is far not in all organisations and not on all items, he marks.

Technique of Watson Wyat

Advisers have analysed compensations of top-managers in 1089 public American companies. Cases when the general director has worked on one place at least three previous years were considered only. The average gain of the companies which have got to sample, has made $1,6 billion, average capitalisation - $2,2 billion.