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1/ So acc to Fortune, critics of outrageous CEO pay are getting it all wrong. "Alex Edmans, professor at London Business School, thinks that critics may have twisted view of compensation, especially when they focus on pay ratios and median salaries." fortune.com/2019/04/23/ige…
2/ He continues "'They are based on the pie-splitting mentality, that the firm is a fixed pie and anything that goes to the CEO is at the expense of workers,' Edmans said. Instead, he looks at the “pie-growing mentality,” where there is additional value."
3/ That's all well and good but when does the growing pie ever feed the people at the bottom? Basically never. It is like a pie growing, more than anyone likes to acknowledge. To say that all I am asserting is to "Bring the CEO down" as he suggests is a mischaracterization
4/ of the argument and misses some important issues. First of all it presumes that to come home with only, say, 20 or 30 million dollars instead of over 65 is some kind of a hardship is absurd. I don't know many people who would consider a third of this package or even a fourth
5/ To be some kind of hair shirt situation. Nor am I saying that he should step down. As I've said, he is a good man and a brilliant man, who has managed the company well. But even so the package is obscene. How can anyone deny this?
6/ There are those who say that it's just that the environment is competitive and you can't risk losing your CEO to another company when he is doing so well for yours. That's where all this public outrage comes in very handy. It's the environment that needs changing.
7/ For decades the "environment" has developed an ethos that operates on a few assumptions considered unassailable. For instance there is the assumption that the CEO is an anointed genius, practically supernatural in his abilities and obviously irreplaceable.
8/ Clearly very few people could do Iger's job as well as he does it. I sure couldn't, and I am not at all ashamed to say so. I also couldn't be an NFL linebacker. I'm happy to stay in my lane. And clearly over time Iger, like other long-time CEO's has developed...
9/ a knowledge base and skill set particular to his very particular company and it would take another person a very long time to get up to the kind of speed he's running at. But NO company should consider its CEO irreplaceable. That gives too much power to the CEO,
10/ And inhibits one very important, I would even say the most important, task the board needs to be on top of at all times--succession planning. It is the height of irresponsibility to not know what you would do with this enormous company should your CEO get hit by a bus
11/ Too many livelihoods are at stake for a board not to have a credible succession plan AT ALL TIMES, regardless of what reverence in which they hold their current CEO. And it is a weak CEO indeed who does not welcome succession planning. If your CEO is threatened by that,
12/ Beware. What's more, Edmans says that Iger’s compensation is fair because of the long-term value he’s brought to the company. He has indeed done that, all while slashing benefits and pay at the low end. "Value" is in the eye of the beholder after all.
13/ And none of that success has redounded to the real benefit of the lower wage people. I think Professor Edmans is talking about value as it looks to the eyes of the shareholder, which brings us to another shared assumption that sorely needs testing.
14/ that is that executives should be measured only by the value they drive to shareholders. This assumption was not handed to us by Moses on a stone tablet, you should know, in fact it is relatively new view pushed by Milton Friedman and conservatives and the U of Chicago
15/ In the 1970's. Before then John Kenneth Galbraith was at the wheel and corporations were understood to be established to run for the benefit of shareholders, yes, but also for other stakeholders, like employees, people who live nearby, vendors and the general public
16/ this shift in values has been the single most corrosive shift in the 20th Century, Increasingly CEO's drive value by manipulating share prices with things like buy backs and splits and when they are compensated in shares they are way more likely to see their loyalty
17/ As simply to the bottom line. A CEO that is motivated thusly is far more likely to overlook things like environmental damage, human rights violations, and workers' rights so as to get to the right share price and of course we all know that is deeply bad news.
18/I would be all for Edman's view that you don't pull the CEO down but instead focus on the rising tide lifting all boats, but that metaphor doesn't apply here unless a significant share of the boats have sprung some serious leaks.
19/ Incentives must be rethought and CEO's need to be rewarded for looking after workers. Boards need to be rethought and repopulated with at least some number of employees who could be elected annually by workers. Why on earth is this never on the table?
