Investors not only ones losing faith (Editorial, June 15, 2002)

By John Hobel
|Canadian HR Reporter|Last Updated: 07/15/2002

Power corrupts and absolute power corrupts absolutely. We can add to that stock options absolutely corrupt.

Deceitfully driving up stock prices, cashing in shares when the price is high and running for the hills as bankruptcy looms is apparently a modus operandi among too many CEOs and top executives. Thanks to the business heads at WorldCom, Adelphia, Enron and Andersen, public confidence in the truthfulness of corporate accounting has eroded. With the stability of the economic system at a stake, regaining investor trust — more specifically investor money — will require government to introduce appropriate controls and send scores of execs and accountants to prison to discourage shifty practices.

But investor confidence is not the only trust that has been damaged. Employees — not just those at firms destroyed by unscrupulous executives but workers everywhere — have been left shaking their heads at the behaviour of the executives who manage above them.

The employment relationship is one of trust. It’s a contract between employee and employer. If one side is perceived as dishonest, the workplace will suffer.

It’s about commitment. Employers want it from staff, but that commitment comes with a price.

Employers have been asking staff to do more with less. Workplace stress and time away from family are acceptable to workers, in degrees, in return for fair compensation and positive work atmospheres (when you can get them). But all this hard work takes on an unpleasant tinge, when it appears executives are milking the corporation for all its worth. Why should employees labour to make these people richer? Where’s employee commitment to a corporation when leaders are willing to run the endeavour into the ground?

It makes HR initiatives that seek to encourage commitment, loyalty, quality assurance and innovation pointless. These qualities won’t exist in staff who lack faith in the ethics and commitment of senior management.

And there are other implications for HR.

Compensation plan designs need review. Stock options were meant to link pay and performance, reward success and attract and retain the best. Stock options rose in popularity as dotcom startups used them to˚ reward innovation and risk-taking. The practice mushroomed across corporate North America, but this “new” compensation system has increased exposure to old-fashioned greed. It’s time for re-evaluating incentives.

Stock market performance is another problem for HR. With investors losing confidence in the market and the effect of collapsing scandal-ridden corporate giants, stocks are facing an uncertain future. That’s bad news for pension plans that have been riding high on stock increases. Employee retirement planning will need some rethinking.

While compensation and benefit plans are a concern, eroding employee commitment will be HR’s biggest problem if more accounting scandals emerge.

This is about more than helping oneself to office supplies and fudging expense accounts in an attempt to emulate executive behaviour. It’s about withdrawing commitment and loyalty from organizations that don’t deserve it. Unfortunately, ethical corporate leaders may be tarnished by the actions of a few if the public perceives these accounting scandals to be the norm rather than aberrations.

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