Remuneration rumblings

I have acted as a CEO in turnaround situations many times. And let me tell you – the argument put forward by those who would justify the grotesque amounts paid particularly (but not exclusively) to CEOs is baloney.

While I have been a CEO in businesses where shareholder value has increased, the reason for the appreciation in shareholder value has had to do with the incredible contribution made by the staff of the organisation.

Sure, as a CEO you make some tough calls, but who doesn’t? The main responsibility of the CEO however is to listen to employees, find out what they need to make the business better, and then give them those resources.

The CEO’s role is to build inclusiveness so that in the end the outcome is a result of intense collaboration. Can you imagine the intensity of the anger of employees who have been used to develop and implement the CEO’s program and in despatches it is mentioned how pleased the board is with the performance of the CEO and then dishes out millions as a sign of the board’s appreciation? There is frequently the token clause in the annual report about the great contribution of the staff, which is not accompanied by a huge incentive payment.

In my role as a turnaround CEO, it has almost always been the case that not only have I relied on the support and confidence of the staff, but I have identified people in the company who have the ability to step up and take on more responsibilities. More often than not, I have discovered CEO material within the organisation and not necessarily at the next rung down but sometimes right down in the dungeon (which was literally where I found one future CEO).

There is senior executive material by the bucket-full if you want to look, but unfortunately the commercial world is besotted with this belief that you need a genius and there are few of them around.

What you need is a person who is prepared to listen to staff, suppliers and customers and to put in place programs that respond to their concerns. That is not to ignore the necessity to have some level of intellectual acumen, but does that justify millions of dollars a year when the smartest people in town, like PhDs at universities wait with bated breath on whether their contract will be renewed for another semester?

Then there are surgeons who have some pretty hefty responsibilities requiring a high level of intellectual acumen and expertise who work in public hospitals for respectable levels of remuneration.

It would be interesting to look at all of these so called gurus to see not just how they performed but when they performed. Over the past seven or eight years, we have been emptying the pits in the Pilbara with unabated speed and taking in the dollars from the sale of raw materials to the Chinese and Japanese.

We all know that we have had a spin off in the broader economy and everyone has been happy and spending money like it is going out of fashion (which it is!).  So, in those circumstances, a CEO, unless totally inept (which, regrettably some are) couldn’t help but stand there and watch the money come in the door and employ  people to make sure that some of that money got through to the shareholders, either by way of dividend or an increase in the value of the shares.

How smart were they? I don’t know, but what I do know is that you didn’t have to be all that clever, and what I also know from interviewing many people in the work place during that time, that many CEOs increased the level of frustration of staff enormously.

I also know that the many of these so called smart guys didn’t understand the concept of organisational behaviour, with the result that profits were more a product of the buoyancy of the economy rather than any great Einsteinien inspiration. (With a little sensitivity to organisational dynamics, the profits could have been significantly higher).

How are these irreplaceable CEOs doing now?

Let’s look at one example. The dear amigo, Sol, who takes home $13 million, give or take a few dollars. (He probably gets some pocket money like cars and things.) So, the share price of Telstra had dropped over the past five years from a high of $5 to the current price of $3. That is some performance! (And it was dropping long before the current financial crisis).

In the meantime, for whatever reason (some say it was a belief within Telstra that no one could survive without Telstra), it has been excluded from one of the biggest government contracts in history. In the meantime, a few thousand of those people who helped the CEO make budget have been sacked from Telstra as a way of helping meet the budget.

The sad thing about all this is that in organisation after organisation in which I have been involved, I have learnt that when companies are in trouble (and many of them are but are not aware of the fact), people at the coal face know what is wrong, they know how to fix it but can’t because no one will listen to them – and even if they did, they wouldn’t give them the authority to go ahead and do whatever has to be done to fix the company.

All a CEO had to do is to recognise that she or he does not have all the answers and indeed, quite frequently, don’t even know the questions. However, there is an enormous resource of people at the coal face within the organisation that is crying out to be heard, and that is where you will come face-to-face with the real issues and many of the solutions.

How wrong would it be for a CEO to acquire that knowledge and use it to improve company performance and walk away with remuneration that is totally beyond the scale of remunerations in other professions?

There are CEOs by the bucket-full out there in the workforce today, and they are working less effectively than their potential for failure of senior management to listen to them. Give them a bit of a chance and some mentoring and they will fill the ranks of the CEO and put to bed the ridiculous notion that the role is of quaint uniqueness.

Finally can I return to one of my pet themes, which is that of incentive?

They are at the bottom of our current financial crisis. Why should a board offer a CEO an incentive to achieve an increase in the share price? Isn’t that one of the responsibilities of a CEO? If that is their job, why offer them an incentive to do their job?

It is like saying “we will pay you a salary if you don’t do anything, but if you do a good job, we will pay you more!” It is almost assuming that a person who you engage as a CEO will not do her or his best unless you ice the cake.

There is something inherently dishonest about a system where a person (be they a CEO or not) can say “Look; for the salary you are offering, I am not really go to do my best and bust a boiler; if you want me to do my best and a great job, you will have to throw in some incentives”. Give me a break; would you ask a surgeon before the operation whether they require an incentive to save your life, but they will only get the schedule fee if you die?

Louis Coutts left law and became a successful entrepreneur. His blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Click here to find out more.

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