Ferracone: Specializing in executive compensation and performance consulting.

Courtesy Robin Ferracone

Robin Ferracone (MBA 1980) is the founder (in 2007) and executive chair of Farient Advisors (www.farient.com) —a firm specializing in executive compensation and performance consulting—and the author of Fair Pay, Fair Play: Aligning Executive Performance and Pay. A business leader, entrepreneur, and consultant throughout her career, Ferracone, prior to launching Farient, led the Human Capital business at Mercer, and before that, co-founded and led SCA Consulting.

Ferracone began her career as a business strategist at Booz & Company (then, Booz, Allen & Hamilton). “I got into executive compensation and performance because incentives are a way to help drive corporate strategy,” she explains. “A lot of governance infrastructure has grown up around executive pay and so I’ve become interested in the issue of governance generally.”

Farient’s research indicates that investors are generally accepting of high compensation levels as long as performance is good. But not surprisingly, it’s a different story when performance is lacking. “Based on our research of the S&P 1500 going back 15 years, we developed a model—the Alignment Model—that provides a market standard against which to analyze a company’s pay relative to its performance,” Ferracone says. “So, for a given company, in terms of its current revenue size, its industry or peer group, and its performance, the model shows whether an executive’s pay is in line or out of line with performance over a long period of time, like 10 years.”

With its benchmarking, the model helps companies and their investors know if pay and performance are aligned. If improvement is needed, it can help identify the issues and test the effect of alternative courses of action or alignment. And, says Ferracone, “it is an excellent communication tool to facilitate productive discussion between compensation committees and management, and between companies and their investors.”

Asked if leadership and excessive compensation are mutually exclusive, Ferracone replies, “I think so. A good leader is accountable for the performance of the organization and stands up to it in every respect, including with his or her compensation. If a leader’s compensation is excessive relative to the market for CEOs, then that’s a form of imperial leadership, rather than inspirational leadership.” Of one CEO’s recent exit package ($26.4 million in stock, plus $100 million in cash), Ferracone, noting that the individual’s compensation history was already excessive, told USA Today (November 11, 2011) that “paying the retiring CEO $100 million because he no longer has a title is clearly a bad deal for shareholders.”

Looking back to her HBS experience, Ferracone says, “I remember HBS professors as being second to none. I arrived at HBS with a marketing background and knew that I had to learn finance to round out my skill set; and in that particular area, Sam Hayes and David Mullins were engaging and fun. Jim Ware taught us organizational behavior and given how important this subject is and how it affects what I do today, I should have taken more of those types of classes. Fifteen years after completing my MBA, I took an Exec Ed course called Management of Professional Services Firms, taught in part by Jay Lorsch. Jay and I have kept in touch and I still learn from him as we are both in the world of corporate governance.

“And of course,” she concludes, “I learned a lot from my HBS classmates and from other HBS grads I‘ve interacted with over the years. It all adds up to a lifetime of evolution and change.”

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