Reconnect link between performance and reward

Posted April 01, 2009, at 6:15 p.m.

We have all heard the phrase, “Do as I say, not as I do.” It draws our attention to the fact that rhetoric often does not align well with performance. In this current economic downturn we have clear examples of this adage in action.

American citizens deeply support notions of fair play and equity. When we see performance that merits recognition and an award, we applaud and support it. When we see performance that does not merit recognition and award we expect no action. When we see performance that by its very nature is simply bad, reflects poor decision-making and leadership failures and receives an award, we are justifiably outraged.

The bonuses being paid out by us for the terrible performance of AIG is just such an outrage and worthy of our anger and disapproval. It is likely that we shall see more such inappropriate rewards in the future. The unambiguous link between performance and reward has eroded over time, and individuals expect bonuses for av-erage performance or for just showing up. Congress itself has removed any consideration of performance-rewards in its own process of automatic pay raises that have no relationship to their performance.

However, Congress needs to recognize their culpability in this unfolding fiasco and that their rhetoric does not match their actions. It was Sen. Chris Dodd, D-Conn., chair of the Senate Banking Committee, who was involved (and it is not clear to what degree) in adding an executive compensation restriction amendment to the $787 billion stimulus bill. The language provides an “exception for contractually obligated bonuses agreed on or before Feb. 11, 2009.” This will continue to serve as a legal justification for such bonuses being paid out of stimulus funds in the future. Rather than tax the AIG employees on their bonus money (which is unlikely to survive a legal challenge), why not repeal this exception now?

There is another adage that applies here as well. “Fool me once, shame on you, fool me twice, shame on me.” The first stimulus package passed in November 2008 had absolutely no standards of performance, no clear measurement criteria, no reporting requirements and no ability by the government to either hold those receiving stimulus funds accountable or compel changes in the recipient’s behavior. The 400-plus page legislation was passed in five days.

In February, Congress once again passed a stimulus bill in the amount of $787 billion in a fast track manner. The legislation itself does not contain explicit standards of performance, clear measurement criteria, reporting requirements and no ability to hold organizations receiving stimulus funds accountable or to compel changes in their behavior.

The president has established a Recovery Transparency and Accountability Board (headed by Vice President Joe Biden) and a Web site: http://www.recovery.org. But both of these are more concerned with contract enforcement, audits and the like. It is not clear that either one will effectively deal with how stimulus money is used and how organizations will be held accountable for their use.

Neither corporate America nor Congress has performed in an exemplary manner in this unfolding economic challenge. It is time for actions to actually match rhetoric, to clearly perform the tasks that need to be done, to hold individuals and organizations truly accountable and to eliminate rewards for behavior and performance that is not meritorious.

John F. Mahon is dean of the College of Business, Public Policy and Health at the University of Maine.

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