June 21, 2010 — Last week, the President addressed the nation from the Oval Office about the BP catastrophe in the gulf. Earlier that day, I read an article in GQ that I'd recommend to anyone interested in a first-person account of the events leading up to the oil rig explosion. The money quote, literally, is "the problems with Macondo started on his last hitch, about two weeks into the job. Twice drilling had to stop — oilmen call it getting stuck — once to patch a crack in the bore hole, then again to drop a cement plug into a tender spot in the subsurface that collapsed around the drill string, the miles of pipe attached to the drill bit. All told, the Horizon lost at least ten expensive days. And no one gets a completion bonus when a well comes in late."
Seems compensation is again connected straight-line to another disaster. Think back over the past few years — Enron, Lehman, BearStearns, CountryWide, pick your own examples. Then reset your imagination's filters and think about teacher pay and fee-for-service medicine. What I see is compensation as both cause and effect of cultures gone wrong. Taking excessive risk, cutting corners with safety, padding the books, piling on diagnostic procedures, zealously guarding tenure at the expense of students all have the same thing in common — they are behaviors that are induced or distorted by pay schemes that work all too well. Each are perfect illustrations of the axiom that you get what you pay for. Why should we be surprised?
That's an awfully big weight to drape on the shoulders of compensation. In the highly technical and complicated world of off-shore drilling, I expect that in the final analysis there will be a plethora of contributing factors that ultimately caused this terrible accident. Potential financial rewards on the part of those involved will certainly be one of those factors. With the project being behind schedule, maybe the decision makers were more worried about simply keeping their jobs or getting a big black mark on their reputations and performance reviews for missing a huge deadline. Or maybe it was numerous warning indicators that apparently went unheeded. There were also mechanical failures which occurred. Again, probably many factors were involved, and time and investigation will tell which of these rise to the top as having the most influence. Perhaps it is possible to draw some kind of line between many/most of these factors and compensation; compensation being that which is directly earned from meeting the drilling schedule or indirectly from keeping drilling/production costs as low as possible and thereby causing less than optimal decisions being made.
Now the financial disasters you cited are clearer examples of where greed has dulled the conscience and dimmed the decision making of top executives. Compensation plans carry plenty of blame in these mistakes and willful missteps. But it's not really the plans that are to blame but those who design and approve them that should shoulder the burden. Many of these plans were the incentive plan equivalent of a "layup" where there was little chance of any result less than big rewards. And these are the types of behaviors that give compensation a bad name and result in little things like Sarbanes-Oxley which punishes all for the actions of a few.
So Jim, perhaps you aren't too far off the mark in asserting that you get what you pay for. It appears we will be "paying for it" for a long time to come.
June 21, 2010 — Last week, the President addressed the nation from the Oval Office about the BP catastrophe in the gulf. Earlier that day, I read 
That's an awfully big weight to drape on the shoulders of compensation. In the highly technical and complicated world of off-shore drilling, I expect that in the final analysis there will be a plethora of contributing factors that ultimately caused this terrible accident. Potential financial rewards on the part of those involved will certainly be one of those factors. With the project being behind schedule, maybe the decision makers were more worried about simply keeping their jobs or getting a big black mark on their reputations and performance reviews for missing a huge deadline. Or maybe it was numerous warning indicators that apparently went unheeded. There were also mechanical failures which occurred. Again, probably many factors were involved, and time and investigation will tell which of these rise to the top as having the most influence. Perhaps it is possible to draw some kind of line between many/most of these factors and compensation; compensation being that which is directly earned from meeting the drilling schedule or indirectly from keeping drilling/production costs as low as possible and thereby causing less than optimal decisions being made.
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