Dodd-Frank's 'Poor Me' Effect

Last week, I identified some executive-compensation challenges CFOs and CROs confront.

Since then, I've had a dozen conversations with general-workforce and executive compensation experts for a research project on compensation trends I'm conducting. It's an exciting time to be a compensation consultant.

While the process of designing – or, in many cases, redesigning -- executive comp programs is fraught with risk, it also represents a refreshing topic at a time when so many other major issues (I'm thinking of political discourse) are fraught with bumper-sticker generalizations and us-vs.-them dumb-downs designed to roil rather than to inform.

Executive compensation discussions are nuanced, complex and informative; they also frequently require participants to simultaneously hold opposing ideas in their minds.

My discussions also have been colorful: one veteran comp consultant described Dodd-Frank's impact to organizations as "sugar in the gas tank." Another confided that it was unlikely that the bulk of Dodd-Frank that has yet to be finalized into specific rules by the SEC would ever be finalized.

Interesting.

Not everyone I spoke with has been anti-Dodd-Frank; however, I inferred from almost everyone I talked to that the type of risk-management being injected more heavily into executive comp programs as a result of the new law sounds one-sided, and incomplete. Right now, "risk management" in executive comp design translates to "avoid the potential for bad headlines." That's a problem because businesses and the U.S. economy are in desperate need of risk-taking, rather than a mopey focus on risk avoidance.

And it definitely sounds mopey. Too many comp consultants, board members and C-suite executives express a "woe-is-me" response to regulation. This reaction largely ignores the problems that sparked the regulatory response in the first place (and there were – and still are – problems, regardless of how effective we think the rules are in addressing these problems). Worse, this reaction smacks of surrender: The Man and his rules made it too difficult for me to do business the way I used to, so I'm going to sit this one out.

Nonsense.

The post-sweeping-regulation herd behavior (read the risk management language in 20 proxy statements and see if you don't start seeing the same bromides repeated over and over) is to be expected. After all, Dodd-Frank could exert a greater impact that Sarbanes-Oxley.

But get over it. At least get over it before your competitors do. Companies that embrace a more nuanced and complex approach to risk management – a strategy that rises above "avoid bad headlines" – will be better positioned to focus on rising revenues rather than rules.

In my next post, I'll get off my lecture horse and share a few compensation risks I've gleaned in recent weeks…