Excessive CEO Pay Disrespects Employees

Hundreds of CEOs top $8.3M pay mark – USATODAY.com:

This isn’t exactly “news” or at least anything new. Excerpt from the article:

“CEO pay isn’t set by markets, Finlay said in an e-mail interview. Instead, it is ‘determined by a small clique of like-minded directors, most of whom are themselves past and current CEOs with a vested interest in perpetuating a failed, but to them, remarkably generous, system.’

Billionaire investor Warren Buffett, the world’s second richest man after Microsoft Corp. founder Bill Gates, doesn’t go quite that far. But he did write in his annual letter to Berkshire Hathaway shareholders letter last year that ‘too often, executive compensation in the U.S. is ridiculously out of line with performance.'”

Toyota’s CEO, Hiroshi Okuda, made $903,000 in 2004, according to the linked list. Rather than jumping from company to company,

Hiroshi Okuda joined Toyota in 1955, at about the time of the company’s entrance to the United States market (source).

Another funny tidbit from the independent “Toyoland” website:

It is worth noting the martial arts experience of the two top Toyota leaders. Martial arts require discipline, patience, and study; American leaders tend to be lawyers and accountants with experience in obfuscation and penny-watching.

More on this topic from AutoWeek:

“U.S. CEOs’ income is 550 times greater than the average employee’s,” says Abegglen. Citing figures from compensation consultants Tower Perrin, he says that in Japan, “the multiple is about 10 or 11 – almost identical to Germany.”

“Compensation is distributed within the community, and no one person is given room to be so overly compensated,” he says.

How can employees at Fortune 500 companies respect their leaders when they look like pigs at the corporate trough? The leaders aren’t showing respect for their employees. That’s where the cycle starts. No wonder so many employees are cynical and start looking out for themselves instead of doing what’s right for the company. They’re only following the example that’s set from up top.

More from “Curious Cat” John Hunter on this topic and more from him on obscene executive pay.

What do you think? I’ll re-iterate the point that executive pay is more of a clique and cabal than true capitalism. Even athletes and actors have more of a free-market system. Athletes even work under salary caps, the same thing doesn’t apply in the executive suite apparently.

Lean and the Toyota Production System teach us to have “respect for people.” I guess some of these companies get so large that the executives can’t even relate to the employees anymore, or vice versa. That can’t be good for business.

Update: Not manufacturing, but check out this story about Whole Foods… seems to represent “respect for people” much better, I think.’

Update: Here’s an article about how salaries are just a small part of executive compensation, but highlighting some executives, such as the Google founders, who take a $1 paycheck to “promote an egalitarian culture.” Yes, the Google guys are so rich that they don’t need a paycheck, but they STARTED the company and had an entrepreneurial spark that the market rewarded. This is far different than an executive, like former Home Depot CEO Bob Nardelli, who stepped in to “manage” an already successful company.

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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7 Comments on "Excessive CEO Pay Disrespects Employees"

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  1. Anonymous says:

    “American leaders tend to be lawyers and accountants with experience in obfuscation and penny-watching.” – that’s just not true. There are plenty of lawyers and accountants, but just as many salesmen, engineers and others.

  2. Mark Graban says:

    You’re right, it was a generalization and generalizations generally aren’t true!

  3. Jim says:

    Mark,

    One interesting thing to note about athletes is that they get paid for for performance.

    Taking a page from the Delphi playbook (and I am sure a lot more examples can be dug up) everyone is familiar with, the _plan_ was to increase pay for the people running the place into the ground. Or how about the former head of HP who got paid millions for being fired.

    -Jim

  4. Anonymous says:

    The thing that makes me so mad is when these guys (and gal, Carly Fiorina at HP) are paid for failure.

    Lesson is, if you get a job like that, just fail and walk away with the $$$$. Seems like highway robbery.

  5. Anonymous says:

    It turns out that the CEO of the company I work for pulled in about $7.8 million in the same year that the company “redeployed” over 10,000 employees.

    It is interesting that at the same time the company is experiencing its lowest measurable level of employee satisfaction and unusually high levels of sick leave. Coincidence? I’m not sure.

  6. robert edward cenek says:

    See my spin on this at http://www.cenekreport.com.

    Called A Modern Parable, it is a tongue in cheek look at the state of much of American industry.

    Note: it is not my original writing, but was borrowed shamelessly from someone else.

    robert edward cenek, RODP
    http://www.cenekreport.com
    Uncommon Commentary on the World of Work

  7. Anonymous says:

    Tired of reading about all of the CEO’s making so much money and the worker being left behind or let go? Let you voice be heard. http://www.CallTheCEO.org. Find the CEO’s number or submit one yourself. Tell them what you think.

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