There’s More to Excellence Than High Pay
Top executive pay has been in the headlines since auto industry leaders awarded themselves big bonuses at a time when their employees were being asked to hold down wage demands and help meet foreign competition. More recently, Walt Disney Productions’ new chief was given a $750,000 bonus to come to Disney and 20th Century Fox set the salary for its new boss at $3 million a year.
The question such headlines raise is not so much the appropriateness of what these specific individuals are receiving but whether many chief executives are paid too much and what this high pay is supposed to accomplish.
In the case of Disney and Fox, there’s a strong competitive factor in an industry known for big paychecks to the best performers, on the screen and in the board room. In both cases, the companies went bidding for outsiders rather than select a chief executive from within. The auto industry is more typically the case of professional managers being awarded the kind of wealth enjoyed by individuals who’ve founded a successful, innovative enterprise.
Some salary experts argue that top people must be paid enough to permit middle management salaries sufficiently high to attract the best people. Moreover, there’s personal sacrifice and risk attached to being the person out front. Yet in a nation that pays its President only $200,000 a year, it is a matter of considerable wonder that many top executives collect more than $1 million annually.
Moreover, while chief executive pay is generally set by the board of directors, it is frequently the CEO himself who influences that decision. Which raises some questions: Who decided the job is worth a million dollars or more? Is the focus of the top man too much on getting wealthy and too little on another important attribute needed in a chief executive, a selfless dedication to leading others?
Overboard on Pay
“I think we’ve gone overboard on executive pay in this country,” says Roy Anderson, chairman of Lockheed.
It is the biggest salaries that generally make headlines, of course, while the average CEO gets by on something less spectacular. Anderson is an example. His $787,245 for last year was hardly pauper’s wages. But among the six largest companies in the Los Angeles area, it was by far the lowest. Moreover, in a Business Week list last year of CEOs who returned shareholders the most for their pay, Anderson ranked second only to Lee Iacocca of Chrysler. He still ranks fairly high this year.
During the long period when Lockheed was struggling to stay alive--with loan-guarantee help from Uncle Sam--there were executive salary reductions at the company. Anderson says he doesn’t want to see that pay restored now that good times have returned, just for the sake of catching up.
For one thing, he’s sensitive to the fact that Lockheed is in the spotlight as a defense contractor. For another, “You can’t ask for wage restraints by your people”--which Lockheed has done--”and then have them see the pay at the top rising a lot faster.”
“Anyway,” he adds, “I don’t think pay is the only incentive. If you are afforded job satisfaction, an opportunity to exercise your talents, that’s worth a lot.”
Anderson also drives himself to work--though he has a driver available during the work day--and avoids limousines as “conspicuous consumption.”
Another part of executive compensation is the stock option, and many executives make even more on them than they do from a regular paycheck. Anderson, however, doesn’t include stock options in his criticism of top-level pay (he stands to make plenty on them, himself), because shareholders benefit right along with top management as the value of the stock rises. If it doesn’t rise, the options often are worthless.
It may be reasonable to exclude options from the debate, but overly generous option plans can focus too much attention on the stock market and too little on the business. And the basic question remains: What message is conveyed by overly generous compensation? The risk is that it overemphasizes wealth as the incentive for excellence.
