Lest people think that we Fools are Pollyannas when it comes to executive pay, I'd like to make one thing clear: Good performance ought to come with substantial rewards.

Case in point is this morning's announcement by Procter & Gamble (NYSE:PG) that President and CEO A.G. Lafley has been rewarded a $3 million bonus. In the three years that Lafley has been at the helm, P&G has transformed itself from a strategic basket case to a company that once again has shown the marketing and brand management prowess that made it one of the largest consumer products companies in the world.

Under Lafley's watch, P&G has gotten back to basics. It sold off its Crisco and Jif brands to J.M. Smucker (NYSE:SJM), and has purchased Clairol and German hair-care company Wella. Clairol has been a smashing success for P&G, accounting for nearly one-fifth of its total revenues. P&G's stock has responded, up 11% in 2002, and up nearly 50% from the troughs hit during the tail end of his predecessor's reign at the company.

The market has reacted strongly to the revitalization of P&G's core brands. For example, its Crest Whitestrips have proven a runaway success. Meanwhile, Pampers and Tampax, which in the not-so-recent past were being eaten alive by Kimberly-Clark's (NYSE:KMB) Huggies and Playtex's (NYSE:PYX) Feminine Care lines, respectively, have shown substantial rebounds. P&G has exactly one product -- Olean -- with any kind of protective moat, while the others are dependent upon brand, marketing, and distribution to keep ahead of the field.

None of this is singularly due to Lafley's efforts, naturally. And our willingness to tolerate bonuses much greater than base salary is by no means infinite. However, Lafley has taken a company that had been set adrift by lack of focus and pulled on the bridle, hard. His shareholders have been rewarded substantially as a result, and the longer-term prospects for P&G look better than they have in years.

Bill Mann owns shares of Procter & Gamble and J.M. Smucker.