Executives Deserve to Be Paid Well

John A. Allison IV is the former CEO of and acting Chairman of BB&T, one of the largest banks in America. Allison was recently named one of the best CEOs of 2008 by MorningStar as his banking principles are largely seen as the reason behind his bank's relative success during the financial crisis. A graduate of the University of North Carolina with an MBA from the Fuqua School of Business at Duke University, he has a wife and three children.

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TRANSCRIPT

Question: As a board member who has perhaps been involved in setting pay levels for executives, what is your view of executive compensation? (Mark Thoma, Economist’s View)

John Allison: I think executive compensation ought to be set by the marketplace. Boards do make mistakes sometimes in the executive compensation process. I think there have been some obvious abuses of executive compensation in a few cases, but I think the more generic problem is not that people could be paid well, but the measurement of performance is not right. And I think the two errors that have been made, one, a lot of time performance is measured too linearly, it doesn’t include the comprehensive performance, and secondly, a lot of times performance is too short term. So I think that boards should be setting compensation, I think highly performing people ought to be paid very well based on market conditions, but I think boards should do a good job and I think, frankly, I think our board has done a good job being sure the compensation is not just linear and being sure it covers a long period of time, not just what happens over a short period.

Question: Is giving shareholders more control over the level of compensation that executives receive an answer to the problem?

John Allison: I think that the shareholders have to select the board members and the board members have to make those kind of operating decisions. I don’t think shareholders have enough information to make concrete operating decisions. They can put the board in the position--they simply couldn’t attract the kind of talent that they need to operate. We’re seeing that right now with some of the interference by the government in setting executive compensation. I do think shareholders should be very careful in selecting the board members. I would say this though; I don’t think shareholders have been un-guilty, particularly institutional shareholders, in what’s been going on recently, because a lot of shareholders are very short term oriented. And so they encourage short-term performance and they give executives that act in a short-term manner. So I think if shareholders want a different long-term result, then they need to invest for the longer-term perspective and that’s a really important responsibility versus micro managing the board process.


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