A while back I wrote a blog entry titled Characteristics of Ineffective Leaders. In it, I marveled at the bumper crop of bad leadership examples that have been served up lately for us all to feast on. Well, pull up your chair, because it's feeding time again.
When Merrill Lynch's former CEO Stan O’Neal, left the company last year, he was widely disparaged—and continues to be disparaged-- for not properly overseeing Merrill's balance sheet. During his tenure as CFO, then later CEO, he nearly ran the company right out of business. He finally left in shame and disgrace, and with an additional $250 million in his pocket -- his reward for helping the gargantuan firm lose $8.4 billion.
Now, his successor, John Thain, the former CEO of the NY Stock Exchange, has requested a $10 million bonus for his role in saving the company. To his credit, Mr. Thain did broker a deal with B of A that preserved the Company's illustrious name and quite a few of its current jobs (at least for now). But does he deserve a $10 million bonus for that? Apparently, he thinks so.
This request has caused a fair bit of controversy. Take a look at what recently appeared in DJ Market Talk under the heading "At Least One Wall St Exec Earned His Bonus:"
John Thain might be one of the few executives in corporate America who earned a bonus this year, James Surowiecki writes at the New Yorker’s Balance Sheet blog. NY Attorney General Andrew Cumo says Thain’s bonus appears to be unjustified, but Surowiecki notes that unlike Lehman and Bear Stearns executives, Thain recognized that Merrill wouldn’t be able to last as an independent firm. “It’s obviously bad form at this point to say anything good about Wall Street executives,” Surowiecki says, “But if preserving shareholder value is still a criterion for evaluating executive performance, there’s little doubt that Thain did a bonus worthy job.”
I'll leave the matter of whether Mr. Thain deserves a bonus to the wisdom and judgment of his Board's Compensation Committee. But what I don't understand at all is him REQUESTING or SUGGESTING such a bonus (both words appeared in various accounts of the situation). Since when does an executive, or any employee for that matter, request or suggest the amount of their bonus? This tells me that Merrill Lynch does not have a proper executive incentive program. If they did, there would have been explicit goals established when Mr. Thain joined and he would have clearly understood what he needed to do in order to receive a payout. And he would have agreed to these terms PRIOR TO accepting the job with the Company. Then, there would be no need for grand-standing or negative publicity -- two things that beleaguered financial institutions hardly need right now. And if such a plan was in place, Mr. Thain's actions in publicizing it were at best colossal bad judgment or at worst a major breach of trust.
So, even if you are not a Wall Street fat cat and your only shot at a $10 million payout involves a lucky Lotto pick, there are several things to be learned from this poorly handled incident:
- Creating proper executive incentives can save a lot of heartache at the end of the year by aligning everyone's expectations from the outset.
- Timing is everything, and asking for the right thing at the wrong time is worse than not asking at all.
- Nothing is gained by appearing greedy.
- A little trust and humility goes a long way.
Apparently Mr. Thain failed to read my description of the new type of CEO America craves. Perhaps I will forward it to him.