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Korn/Ferry International's CEO Gary Burnison makes some interesting points on compensation in an article on kornferryinstitute.com. He argues that the problems that brought down much of the financial-services sector should not be viewed as an indictment of the pay-for-performance concept, but rather as a massive failure of oversight and accountability.

He says there will be unintended consequences if the pay-for-performance concept is scrapped. Already financial firms in the U.S. have begun losing talented people to firms in countries less burdened by the kinds of emergency regulatory oversight that curtailed some pay-for-performance programs. Some of those who left have skills necessary to repair the damage resulting from the financial crisis.

As a result of intense, negative reactions to performance and retention bonuses paid to some employees, a handful of financial firms have developed programs that inflate base salaries while decreasing or ending bonus programs.

Burnison argues that if people in bonus-free environments are compensated just for showing up, then that's what they'll do.

What's needed, he says is not to end the bonus system, but to reconnect it to reality. This means, not just better metrics, evaluation programs, and scrutiny, but tying compensation to corporate strategy, long-term shareholder-value creation, cost cutting, and individual accomplishments. It also means managers, and the people they supervise, engaging in meaningful discussions about each of these points.

Rewards should be highest where retention is most critical. Right now, banks and other financial institutions need a better grip on risk than in the past and they also need to better understand their financial structures and business models, he says.

Companies must recognize the value of paying world-class competition in order to attract and retain world-class talent.

What's your best guess as to how the compensation debate is going to shake out?

I certainly agree that there are almost always unintended consequences to changes in compensation plans. But, people in bonus-free environments will be paid for showing up? And that's all they'll do? That's ludicrous. Surely, even in a bonus free environment, companies can review employee performance in such a way that they encourage certain achievements and discourage a simply showing up mentality. Like, firing anyone who's doing that. And companies don't have to give up bonuses entirely, they merely need to cease tying them to short-term results.

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