FORTUNE: The real CEO pay problem – July 10, 2006
When even FORTUNE Magazine is writing about excessive CEO pay, you know you have a problem. Although I get the impression that the CEO's view it as more of a “public relations” problem to be solved more than a real economic, moral, or leadership issue. The ratio of CEO pay to “average worker” pay has doubled just in my working career, 12 years.
One Wall Street exec said:
“It's not an excuse to say, ‘Hey, the board gave it to me.' CEOs should be responsible too. That's leadership!”
A Warren Buffett associate added:
How bad are things? Here's one wise man's assessment: “About half of American industry has grossly unfair compensation systems where the top executives are paid too much,” says Charlie Munger, Warren Buffett's partner at Berkshire Hathaway.
I like the example set by the CEO of Best Buy:
It's time for more walk and less talk. As Charlie Munger puts it, “The CEO has an absolute duty to be an exemplar for the civilization.” Munger isn't the only leader with that old-fashioned view.
At big-box retailer Best Buy (Charts), 33-year company veteran Brad Anderson decided he was making plenty when he became CEO in 2002.
Because he also wanted to shake up the company's strategy, he decided to hand over his annual option grants to the frontline troops – which he's done for three years now and plans to continue doing until he steps down.
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Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation.
He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean.
Mark is also a Senior Advisor to the technology company KaiNexus.
Thanks for saying it so well. The trend we started is hurting us all… and it will take all of us to reverse it. Bravo for CEO at Best Buy — no wonder they are so respected. We need to support this kind of example and challenged one another to build a new kind of economy where greed is no longer so central to how we live. Thanks for this reflective post that offers hope!
Jeff Bezos makes ~$80,000 per year on salary, but he owns a gazillion dollars worth of amazon.com stock. Still, he practices frugality, an amazon core value. The other officers have lower-than expected cash salaries for officers of a company, but they get phat bonuses. On the other hand, Bezos doesn’t — He owns shares and makes ~80K/year and that’s it. I think that’s a good example of how not to be exuberant.
Pete
I agree that pay-for-performance (stock, bonuses) are the way to go. There are challenges in administering these systems — are you tied to the right measures, long-term vs. short-term, etc. But, it’s better than the Home Depot CEO Bob Nardelli and his “guaranteed bonus” structure. If it’s guaranteed, it’s a one-time lump salary payment. No wonder Home Depot shareholders are up in arms about his compensation.