Don’t be like these guys…
It is June and time for that twisted corporate introspective agony called the Annual Employee Performance Review. There is something slightly Maoist in the idea that, once every year, each employee-supervisor pair should turn on each other and start rank ordering their superlatives and deficiencies like some poor couple in marital therapy. It’s been my experience that more harm than good comes of this. Since I also do my own scathing self-review (Organization: Abysmal. It is demotivating to many of those who work around me to see to what degree my own work is in a shambles.), I had a chance to comment on my own compensation.
I make $300,000 per year running a company of about 300 people with global annual revenues of about $40 million. Fortunately, the New York Times recently reviewed CEO compensation in a piece that I picked up on Twitter, allowing me to make some comparisons and develop two simple guidelines for setting appropriate CEO pay.
- The CEO should never be paid more than 1% of gross revenue. At an astonishing 47% of gross revenue, the leader of the NYT survey is consuming his parent company feet first and his lips are slurping at his own ass.
- The CEO should never be paid more than 10 times the compensation of the lowest paid entry-level college graduate in that company. I don’t care how stuffed your Rolodex, how merrily you multitask, how bluetoothed your smartphone and laptop, how energized you emerge in the office at 5:00 am after leaving a mere 4 hours earlier—you don’t do the work of more than 10 people. No, you don’t.
Virtually all of the corporate CEOs compensating themselves at rates shooting past $100 million each year are doing so not because they have earned it or because they deserve it—they do it because they can. That is the same reason Viktor Yanukovych built himself a mansion containing a white Steinway piano modeled after the one presented to Yoko Ono by John Lennon. That is also why Muammar Gaddafi and Saddam Hussein [fill in any excess you find most grotesque].
The role model of the CEO should be that of a statesman, not a tyrant. His personal ambitions should be modest, while his ambitions for his staff and their enterprise should be unlimited. So if you want a raise, masters of the universe, add $5 million to your corporate sales, add $5,000 to the pay of your newest and brightest—and I’m sure you can do the math from there.
The piano of Viktor Yanukovych, President of Ukraine from 2010 to 2014.
Note added in proof: Application of these CEO rules to my own pay caps compensation at $340,000/yr. However, it was determined that my pay change will be 0.0%. The time being wasted writing and researching irrelevant topics for my personal blog as well as the time spent idly chatting on social media such as Twitter were duly noted. That is, performance issues have delayed the full actualization of my reward potential. Only HR could make it sound so positive.
Kirk M. Maxey: Blog and Website 
Bravo! In fact, I am old enough to remember that what you describe here is how it used to be. President Herbert Hoover, a mining engineer back when that meant something important, made it a fundamental practice of his business that every member of his team would benefit from each innovation that he introduced. He had none of this mindset of firing half the team and doubling the wages of the remnant while he pocketed the increases.
Those CEOs broke laws in order to “earn” their fortunes; what they did destroyed the world’s economies, and yet Obama didn’t only bail out their insider investors; he told these CEOs in private, “‘My administration is the only thing between you and the pitchforks.’ … ‘And I want to help. But you need to show that you get that this is a crisis and that everyone has to make some sacrifices.’ According to one of the participants, he then said, ‘I’m not out there to go after you. I’m protecting you. But if I’m going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation.’”
“No suggestions were forthcoming from the bankers on what they might offer, and the president didn’t seem to be championing any specific proposals. He had none: neither Geithner nor Summers believed compensation controls had any merit.
“After a moment, the tension in the room seemed to lift: the bankers realized he was talking about voluntary limits on compensation until the storm of public anger passed. It would be for show.”
And your response to this President who allowed those crooks to get away with it and all their loot is: “I don’t believe the government has any role in ‘capping’ CEO pay.”?
Our culture has developed a poor habit of idolizing wealth without any regard to how it was accumulated. We could learn to respect the absence of obscene wealth, in spite of obvious opportunities where it could have been self-dealt.
We’ve had a “Democrat” in the White House for years now and still seen no action against obscene CEO pay, but just platitudes against it.
This is from page 234 of Ron Suskind’s 2011 book, Confidence Men, where it describes Obama’s secret 29 March 2009 meeting in the White House with the CEOs of the bailed-out Wall Street firms:
“The CEOs went into their traditional stance. ‘It’s almost impossible to set caps [to their bonuses]; it’s never worked, and you lose your best people,’ said one. ‘We’re competing for talent on an international market,’ said another. Obama cut them off.
“‘Be careful how you make those statements, gentlemen. The public isn’t buying that,’ he said. ‘My administration is the only thing between you and the pitchforks.’
“It was an attention grabber, no doubt, especially that carefully chosen last word.
“But then Obama’s flat tone turned to one of support, even sympathy. ‘You guys have an acute public relations problem that’s turning into a political problem,’ he said. ‘And I want to help. But you need to show that you get that this is a crisis and that everyone has to make some sacrifices.’ According to one of the participants, he then said, ‘I’m not out there to go after you. I’m protecting you. But if I’m going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation.'”
“No suggestions were forthcoming from the bankers on what they might offer, and the president didn’t seem to be championing any specific proposals. He had none: neither Geithner nor Summers believed compensation controls had any merit.
“After a moment, the tension in the room seemed to lift: the bankers realized he was talking about voluntary limits on compensation until the storm of public anger passed. It would be for show.”
I’d say: “Democrat” — my foot! A closeted Republican, that’s what he is. Anyone who looks at what he does, including what he says behind closed doors, and not at what he says in public, knows this. He’s just a better liar than Bush, good enough to fool the country into thinking he’s a “Democrat.”
I don’t believe the government has any role in “capping” CEO pay. The public has an obligation to shame, scorn and humiliate those who are so self aggrandizing.
Do you believe the government has any role in conscripting men into military service? Or regulating abortion in any way? Or regulating sales of tobacco, alcohol, or pornography?
Why is capping salaries sacrosanct, but allowing progressive tax rates not?
The draft, abortion, pornography and drugs are all interesting topics – but I’d like to keep responses from expanding into thousands of pages, so will keep this issue restricted to compensation. I view CEO compensation as a 2-party contract between the provider of CEO services (the boss) and the management of the company (usually, the Board). Involvement of the federal government as a third party is intrusive and violates individual liberties. However, both the Board and the CEO can and should constrain themselves by elevating modesty, fairness, and respect for the employees of the company above ostentatious self promotion of the senior management, to the detriment of the business.
I concur! completely with what you said. Good stuff. Keep going, guys..