Executive Compensation, Employee Motivation, and The Future

I was going through some old transparencies (really!) and came across some old statistics from an April 15, 1991  issue of Time Magazine. an article that I used in some training presentations.

  • American CEOs typically make two to three times as much as their counterparts in Canada, Japan or Europe.
  • Top executive pay rose 12% to 15% last year as profits of the Fortune 500 dropped 12%.
  • CEOs at America’s largest companies made 160 times as much as the average blue-collar worker in 1989.

Today, it looks more like this:

  • US: 300:1
  • Europe: about 25:1
    Japan: maybe 10:1 in general.

What’s amazing is the arms race to the top which we have witnessed in the US; look at how CEOs have used the system to move ahead over time:

US, 1965: 24:1
US, 1980: 40:1
US, 2009: 300:1

This is combined with a paradox which they have created whereby they screw up, drive down stock prices and get paid nonetheless, with golden parachutes and the like, all while installing “pay for performance” for the troops (Carly Fiorina at HP and many others). Executive comp guru Graef Crystal did a study in 1997 with over 800 mid and large companies and found that 98% of the variance in pay had nothing to do with performance…unbelievable, and only worse since then.

The average CEO in the US made 262 times the pay of the average worker — oops, I almost said “earned.” Lots of people have not tied earnings to performance.

How about these:

Thomas M. Ryan at CVS Caremark: $30.4 million (2009 Compensation)
Starting Cashier: $8/hour, $20,800/year
One CEO gets the salary of 1,461 entry-level employees

(Ryan is now gone and Larry J. Merlo is now CEO. His package is about $15 million – stock is up 36% and he owns $44 million of that! (Forbes data) )

Randall Stephenson at AT&T: $29.2 million (2009 Compensation but down to only about $23,000 in 2011…)
Starting Sales Associate: $10/hour, $26,000/year
One CEO = 1,123 entry-level employees

Robert Iger at Walt Disney: $29 million (2009 Compensation)
Disneyland Hotel Housekeeper: $10/hour, $26,000/year
One CEO = 1,115 entry-level employees

Apple CEO Tim Cook looked to make about $377 million in 2011 after making only $59 million in 2010 — but much of that was in restricted stock. His salary is a mere $900,000…

The highest paid executive in Japan is Carlos Goshn who used to head Michelin here in Greenville, SC. He made about $10 million as President of Nissan, about 162 times the hourly pay. Nissan is certainly a global company.

Forbes had this to say (4/10/2010):

For the second consecutive year we have a new name atop our list of the most valuable bosses: Jeffery H. Boyd of Priceline.com. Over the past six years Boyd has been paid an average of $2.9 million per year, while delivering a 46% annual return. Since he took office as chief executive in August 2002, Priceline made an annual 49% return to shareholders, which is towering over the 6% annual return of the S&P 500 over that period.

At the bottom of our performance/pay rankings is Joel F. Gemunder of Omnicare, showing a six-year annual return of -6%, lagging in comparison with its sector, and with an 8% annual return since he took over as top executive in May 1981, which trails the S&P 500. Over the past six years he has been collecting a paycheck averaging $14 million a year.

Frustration in the workplace is pretty high and affects employee motivation. At what point does the pin hit the balloon for the average worker?

Scott SimmermanDr. Scott Simmerman has been Managing Partner since 1984 and states that his total compensation, including stocks, lunches, automobiles and all other perks is much less than those people mentioned above.

He admits to liking the business and having fun.

 

Dr. Scott Simmerman is a designer of team building games and organization improvement tools. Managing Partner of Performance Management Company since 1984, he is an experienced presenter and consultant. 
Connect with Scott on Google+ – you can reach Scott at scott@squarewheels.com

Follow Scott’s posts on Pinterest: http://pinterest.com/scottsimmerman/

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