Would you be happy with $500K a year?

I have been hearing some commentary on the $500K maximum paycheck condition placed on banks that accept TARP funds. One strain of the argumnet is that this is not sufficient motivation for the top candidates to take on senior management roles at these institutions. I have two major problems with this.

The first is somewhat obvious, having your pay restricted should be a great motivating force for executives, considering that it will only be placed on executives of companies that have been managed poorly. If you need to take TARP funds its because you were not doing your job properly, maybe a paycut to such a “low level” might encourage you to do better in the future. Realistically, consdering the extreme amount these executives share in the ups of a company, they should also be required to return bonuses from the previous year and take a cut in pay of the same dollar value their bonus would have been if they had succeeded. That’s probably a bit extreme, however 500K is still a heap of money for failing.

The other problem I have is the idea that the only thing that motivates people is money, when that is just not true. While a lack or loss of money can motivate, extra money can have a surprisingly little increase in motivation and in happiness. Realistically are the people that become executives there solely for the money? Ego and pride are much greater drivers than money will ever be. In fact, it is more likely that ego is what is driving the money so high. Once you have excelled above your peer group and gotten into the position of power, what is the next thing to measure yourself against? Other people of power of course. If a CEO want to “measure up” against another, the size of the company and the size of the paycheck are two factors that show who is Alpha.

I am exagerating a little here for effect of course, but pride is a large motivator for moving into executive ranks. Whiel it may seem a little condescending to suggest that some tribal behaviour is at the heart of executive motivation, there is a modern purpose to wanting to climb the unstated heirarchy of the CEO ranks. The real ego pieces that come to executives have tangible fame and respect privelages. Memberships on boards, government appointments, speaking engagements, book deals, media attention, cults of personality and business school case studies about them. All of these things go to the executives that are high on the totem. While some of them have a monetary reward associated with them, they all have significant noteriety and fame aspects that are more attractive to this group of people.

This is in no way to impugn the character of all executives. Pride and ego is only a prime motivator for a subset of this group. There are a large number of executives that are there either because they feel that is where they can contribute the most, they believe they are in a position of service, or they seek/enjoy the particular challenges on offer. In general though, the pride and ego set are the ones with the huge paychecks, bonuses and golden parachutes.