Tuesday, September 12, 2006

Explain Executive Compensation Theory Again, please

by Ken Houghton

I don't want to attack HPQ. Why bother? The company is so mismanaged it makes corrupt HBS darling American Home Products Wyeth (the Esso/Exxon/Exxon-Mobil of the pharmaceutical industry) and Eisner's DIS look reasonable.

Instead, I want to look at the question on everyone's mind: Other than break California laws, what dodid (see UPDATE) Patricia Dunn and the rest of HP management actually do?
"It's a good thing they're not trying to close a difficult merger or negotiate for a new CEO right now," Reynolds said. "But the business of HP and the leadership there is strong enough that this is just not an issue. It's certainly embarrassing, and it's obviously not the best press, but the good news is this is pretty much divorced from the day-to-day operations of HP."

The late Sherwin Rosen's thesis in The Economics of Superstars (link downloadable only if you have JSTOR access) was that small differences in skill can lead to large difference in wages. But surely those skills have to apply to creating value within the company?

So aside from their self-created Principle-Agent Problem
Following the investigation, board member George Keyworth II was identified as the source of the leak, and HP responded by barring him from seeking re-election.

which made it clear to at least one person that the company was not to be trusted with either his money or his time
Another HP director, longtime Silicon Valley venture capitalist Tom Perkins, resigned from the board in May in protest of the investigators' tactics.

Perkins this weekend called on Dunn to resign.

HP has, perhaps, torn the veil off the idea that executives should be credited with the value created from the growth of a corporation.

UPDATE: There's no news here.
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