Over at Fark.com a rather lengthy "discussion" (600 responses initially) is raging over a recent report that the average CEO makes 430 times the average worker – up from a ratio of 10-to-1 in 1980.
The typical response seems to be that "Fat Cat" CEOs are overpaid, and "somebody should do something."
My personal thought is that many/most companies’ shareholders are probably overpaying their executives – while a good leader is extremely important, it’s rather difficult to justify a 430-to-1 ratio. That said, as far as I’m concerned, CEO’s are entitled to the salaries they’re offered… companies wouldn’t pay them if they didn’t feel it was worthwhile (at least healthy companies wouldn’t…would they?).
Really, the only person whose opinion matters is the person doing the paying. Of course, when the CEO is also the founder, things are different… I doubt that many people are terribly upset at how much money the Google founders make (though that will change if, as the company ages, people forget the story of Google’s founding fathers). Of course, at 1 dollar (U.S.) a year, Brin, Page and CEO Schmidt seem like a bargain in 2006 dollars – but just wait until they sell some stock…
I don’t think that we need our government to step in on this one – it’s a company-by-company discussion between owners and management. I know it’s a bit more complicated than that in a post-Sarbanes-Oxley world, but I’m not terribly concerned. There are enough Google-like stories (just a few years ago, I would have said Microsoft-like…), and there are enough riches-to-rags stories, that I’m not overly concerned about the idea of "two Americas" – at least not yet.
From another angle (and one not often talked about), what message does a company send its workers by paying the top 5-10 people the same amount they spend on the entire rest of the payroll… How does that affect sentiment, culture, motivation within the company… At what point do the highest-ups lose their ability to truly interact with the rest of the employees? Jealousy and greed are not uncommon emotions in business circles. When members of the reserved parking space crowd are observed firing up $20 Cubans with $50 bills on the 18th green, these are among the emotions that come into play. None of this is made any easier by the fact that many workers have little to no insight into what their CEO actually does for a living. If they can’t figure out what their boss’s boss contributes, they may conclude it can’t be all that significant compared to the real work of the company.
We’ve all heard stories about CEOs instituting absurd policies they promised would "improve quality" while "lowering cost" but, in reality, only managed to gum up the works. Many of these stories involve big performance bonuses for the CEO, tied to who knows what. I know that some of these stories are true, and that some of them are not. Such misadventures must represent a small minority of CEO activity or we would all be out of business. But, combined with the aforementioned jealousy and misunderstanding, these stories fuel the fires of distrust workers have toward managers.
At the same time, true talent is expensive because it is rare – at least that’s the theory promoted by headhunters. So how are companies to attract best of class leaders unless they put best of class executive packages on the table?
A friend recently started working for a medium-sized software company. On his second day of training, the company president came in to give a presentation and welcome the new employees. As far as I can tell from the description my friend gave, the primary goal of the presentation was an attempt to extend the "small company" feeling — to give each employee the impression of access to the president… to turn the him into a "real person" who is in touch with what the average worker does, and how the company functions. It was a sort of motivational speech, meant to get everybody excited about making a real difference with their work.
It was obvious to my friend, however, that the president lives in a remarkably different world, simply because he has so much more money. My friend’s main take-away from the meeting was that the president is a super-rich guy who is completely clueless about the day-to-day life of "ordinary" people. When you’ve always had money in near-infinite quantities, and spend most of your time around other people in the same situation, your life is just different. The president talked about how he understands what it’s like to have money troubles… he gave a few examples involving "difficult" situations that my friend wishes he could face himself — things like having to debate between the fourth vacation home and the yacht.
My friend didn’t feel terribly motivated at the end of this meeting. While he figures the president probably has a handle on “running things” at the company, he doesn’t expect company leadership will be particularly attuned to what’s important to the employees (and one has to wonder if that disconnect could extend to the customer as well). He figures the president, having nearly infinite wealth, probably doesn’t realize the extent that simple things like salaries, health benefits, raises, and small bonuses have on motivating employees like him. All in all, the meeting was a bit de-motivating for my friend.
There’s more in play here than a simple dollar-figure on corporate leadership talent. It’s an issue with implications that reach to productivity, satisfaction and retention — and through them to the bottom line.
We all suspect there’s a top-line question in play as well. Visit this space tomorrow for some thoughts on that from Jim Hancock.
