Sky-High CEO Compensation and a Corporate Performance Management SystemJun 19th, 2009 by Forrest Breyfogle.
John Mackey Harvard Business Review posting “Why Sky-High CEO Pay Is Bad Business” made some great points! Mr. Mackey stated that at Whole Foods, adjustments have been made to keep the external and internal equity perspectives in balance. Today there is cap of 19 to 1 –the maximum allowable ratio of the highest cash compensation to average employee cash compensation.
Mr Mackey points out that studies have shown that back in 1965 the ratio between CEO pay and average company pay was 24 to 1. By 1980 the ratio had increased to 40 to 1. The ratio had tended to increase every year. In 2000 it had increased to 300 to 1. In the past 10 years there has been a bouncing of the ratio, where it is currently close to that peak of 300 to 1. Are CEOs today really worth that much more than their comparable peers were worth just a few decades ago?
Mr. Mackey also points out how much American CEOs get paid relative to other country CEOs. One study shows that the average American large-company CEO makes on average 225% more than the average large-company CEO in the other 13 largest industrial countries. One could as are American CEOs really that much more valuable than CEOs in other industrial countries? One could ask are these differences in CEO pay really being determined by competitive markets, or are other factors distorting markets?
John Mackey made great points in the posting! However, let add some additional points to consider.
The Toyota Production System is often benchmarked; however, it seems to me that there are some additional business system policies that Toyota uses, which has even more importance.
Toyota too has an executive pay criterion ratio. A couple other Toyota poicies are that they don’t have golden parachutes and don’t hire executive manager from outside the organization.
Toyota has also built over a long period of time a long-lasting framework for conducting business that is not so dependent upon hiring a superman or superwoman at the top of the organization who has incredible intuition for fixing the problems of the day.
What organizations need is a CEO that creates a system that is long-lasting which survives their tenure so that the organization moves toward achievement of the 3 Rs of business; i.e., everyone doing the Right things, and doing them Right, at the Right time. This system needs to be no nonsense where there is a blending of healthy practices with scorecards, strategic planning, and business improvement!
Integrated Enterprise Excellence (IEE) provides a business governance system for addressing the needs, as described in: “Article – The Elephant in the Room: Corporate Performance Management Issues and its Reinvention, Going Beyond Lean Six Sigma and the Balanced Scorecard”
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