Tag: CEO

UK CEO needs to work until 1pm on January 4th, 2019 to earn as much as what average employee earns in the entire year

Friday 4 January 2019 is “Fat Cat” Friday. In just three working days, the UK’s top bosses make more than a typical full-time worker will earn in the entire year, according to calculations from independent think tank the High Pay Centre and the CIPD, the professional body for HR and people development.

The average (median) full-time worker in the UK earns a gross annual salary of £29,574. “Fat Cat” Friday recognises that in 2019 the average FTSE 100 CEO, on an average (median) pay packet of £3.9 million, only needs to work until 1pm on Friday 4 January 2019 to earn the same amount. The £3.9 million figure was calculated by the CIPD and the High Pay Centre in their 2018 analysis of top pay and it marks an 11% increase on the £3.5 million figure reported in their 2017 analysis. The pay increase means that FTSE 100 CEOs, working an average 12-hour day, will only need to work for 29 hours in 2019 to earn the average worker’s annual salary, two hours fewer than in 2018.

The CIPD and High Pay Centre are highlighting the problem of rising executive pay in a new report launched today. The report, RemCo reform: Governing successful organisations that benefit everyone, identifies the shortcomings of the remuneration committees (RemCos) charged with setting executive pay and calls for them to be significantly reformed. In particular, it highlights:

  • the myth of ‘super talent’ as a factor that continues to drive excessive pay with one remuneration committee chair commenting: “It’s nuts… and nuts has become the benchmark”.
  • how there needs to be much greater diversity among those responsible for setting CEO pay, both in terms of their ethnicity and gender, for example, but also their professional backgrounds and expertise in order to combat ‘group think’.
  • how current pay mechanisms contribute to the problem of high pay. In response, the CIPD and High Pay Centre recommend replacing long-term incentive plans (LTIP’s) as the default model for executive remuneration with a less complex system based on a basic salary and a much smaller restricted share award. This would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance.

The CIPD and High Pay Centre are calling for RemCos to ensure that CEO pay is aligned more appropriately to rewards across the wider workforce and that their contribution is measured on both financial and non-financial measures of performance.

Whole story here.

The dumbest idea in the world: maximizing shareholder value

A Forbes piece on Roger Martin‘s book Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL. I have not read the book yet. But I definitely will.

The “real market,” Martin explains, is the world in which factories are built, products are designed and produced, real products and services are bought and sold, revenues are earned, expenses are paid, and real dollars of profit show up on the bottom line. That is the world that executives control—at least to some extent.

The expectations market is the world in which shares in companies are traded between investors—in other words, the stock market. In this market, investors assess the real market activities of a company today and, on the basis of that assessment, form expectations as to how the company is likely to perform in the future. The consensus view of all investors and potential investors as to expectations of future performance shapes the stock price of the company.

“What would lead [a CEO],” asks Martin, “to do the hard, long-term work of substantially improving real-market performance when she can choose to work on simply raising expectations instead? Even if she has a performance bonus tied to real-market metrics, the size of that bonus now typically pales in comparison with the size of her stock-based incentives. Expectations are where the money is. And of course, improving real-market performance is the hardest and slowest way to increase expectations from the existing level.”

via Forbes.

 

When is the last time you saw such a CEO?

Superstar CEOs underperform

CEO superstars aren’t all they’re cracked up to be, argue two UCLA economists in a paper posted to the National Bureau of Economic Research’s website this week

After receiving awards from publications like Business Week and other organizations,

[superstar] CEOs extracted more money from their companies — mostly in the form of stock and options — than their nonwinning counterparts. But in comparison, their companies’ returns and stock performance suffered. (thanks WSJ)

Can Gates, Soros and Branson create a better world?

Spiegel Magazine tries to answer the question.

CEOs and their libraries

Phil Knight, Steve Jobs, Dee Hock, Sidney Harman and what their libraries reveal about who they are… or how they think.

Poetry speaks to many C.E.O.’s. “I used to tell my senior staff to get me poets as managers,” says Sidney Harman, founder of Harman Industries, a $3 billion producer of sound systems for luxury cars, theaters and airports. Mr. Harman maintains a library in each of his three homes, in Washington, Los Angeles and Aspen, Colo. “Poets are our original systems thinkers,” he said. “They look at our most complex environments and they reduce the complexity to something they begin to understand.” (NYT)

CEOs behind bars

Ten of the most high-profile chief executives and chief financial officers behind bars in the US and the UK are serving a total of 134 years. The oldest will be an octogenarian when he is released, assuming he serves his full sentence, and the youngest will be 47.

  1. Bernard Ebbers, WordCom ($11 billion accounting fraud)
  2. Scott Sullivan, WorldCom ($11 billion accounting fraud)
  3. Dennis Kozlowski, Tyco International (stole more than $150 million from the company)

Can you tell who the other seven are?

Should CEO disclose DUI?

If a CEO gets dinged for driving under the influence, should a company have to disclose it?Answer and discussion here: Herb Greenberg: I Got it Wrong: US Airways Should’ve Disclosed CEO’s DUI

Henry Mintzberg on heroic managers

The notion that “change comes from the top,” Mintzberg declares, is a fallacy “driven by ego,” the “cult of heroic management,” and the peculiarly American overemphasis on taking action. If companies in fact depended on dramatic, top-down change, few would survive. Instead, most organizations succeed because of the small change efforts that begin at the middle or bottom of the company and are only belatedly recognized as successful by senior management.

[missing paragraph is copied below]

Mintzberg argues that the best kind of leader doesn’t try to effect much change. Rather, she functions like a queen bee, which “does nothing but make babies and exude a chemical that keeps everything together.” It is the other bees that busy themselves in going out to sense the environment, find sources of sustenance for the hive, and make the changes necessary to keep the hive alive in the face of an evolving environment. [via HBS Working Knowledge]

In his book “Managers, not MBAs” Mintzberg suggests that

business schools should produce not heroic managers but “engaging managers.” These are leaders who assist those under them, seek input from everyone when forming strategy, and reward everyone when the organization succeeds. [via]

From an interview with Mintzberg:

We’ve long been dominated by calculating managers, right back to Robert McNamara, ex-Ford president and Secretary of Defense during the Vietnam war, and his obsession with numbers. Then there was ITT and Harold Geneen with all his numbers. Now it’s in the form of shareholder value. Everybody is looking at the stock price every few hours. It is like playing tennis and watching the scoreboard instead of the ball. That is the calculating manager.

Heroic managers are ultimately not much different but they think they are artists, they think they are very creative. So they come out with these strategies like at Vivendi, AOL Time Warner, or AT&T. They come out with all these lovely looking strategies, which ultimately are not that interesting. I call them pretend artists. These are the heroic managers, engaging in the great massive mergers, with all the drama that entails.

Finally we have the style I prefer, which I call engaging. This is where managers and chief executives first go about engaging themselves. They know the industry. They know the people. They are committed to the company. They are not there for a few years just to drive up stock prices and run off with their bonuses. And by engaging themselves, they engage other people.

So how do you recognize a heroic manager?

Mintzberg says that they tend to:

  • Ignore the existing business because anything established takes time to fix.
  • Be dramatic, striking deals and merging like mad.
  • Focus on the present, and do the dramatic deal now!
  • Favour outsiders over insiders; rely on consultants as they appreciate heroic leaders.
  • Use numbers to assess insiders. That way you do not have to manage performance so much as deem it.
  • Promote the changing of everything all the time.
  • Re-organise constantly.
  • Be a risk taker.
  • Get the stock price up.
  • Cash in and run — heroes are in great demand.

For a long while, the embodiment of the heroic manager was Jack Welch and I documented elsewhere in this blog how his management rules are no longer followed in industry.

And just to show that management gurus do not know it all, here is (in Mintzberg’s own words) the missing paragraph that I announced at the top of this post:

Enron, with its “loose-tight” management policy, is an example of an organization that has figured out how to effect change without the usual pitfalls, says Mintzberg. The Houston-based energy company manages only two corporate processes very tightly: performance evaluation and risk management. Everything else is managed loosely, and local leaders get an enormous amount of discretion in figuring out how to get things done.

Henry Mintzberg’s website is here.