Executive Compensation

12 April 2004

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Let me start by saying, ”I’m not a communist. I’m not a socialist. I’m not a Democrat.”

That said, I am concerned about a growing divide in this nation between those earning the minimum wage and those earning from the executive pay scale. A person earning $200,000 a year earns better than 18 times what someone earning the minimum wage makes. Not so bad.

However, the typical C.E.O. makes over 25 times more than the guy earning $200,000 a year. This is producing quite a divide, but what makes it worse is the fact that these divides often occur in businesses with mediocre results.

Take a look at W. Edwards Deming’s 14 points for the transformation of American industry. Now take a look at the 7 deadly diseases he called out:

  1. Lack of constancy of purpose to plan product and service that will have a market and keep the company in business and provide jobs.
  2. Emphasis on short-term profits: short term thinking, fed by fear of unfriendly takeover, and by plush from bankers and owners, for dividends.
  3. Personal review system, or evaluation of performance, merit rating, annual review,,or annual appraisal, by whatever name, for people in management, the effects of which are devastating. Management by fear would be better, than management by objective without a method for accomplishment.
  4. Mobility of management: job hopping.
  5. Use of visible figures only for management, with little or no consideration of figures that are unknown or unknowable.
  6. Excessive medical costs.
  7. Excessive costs of warranty, fueled by lawyers that work contingency fees.

These dots begin to connect. Not only are management and the workforce focused on different things, but the worst of it all is that one often sabotages the work of the other.

The competitor in me believes that an extremely talented group of executive that currently earn between $100,000 and $300,000 a year could easily compete for and win jobs as CEO’s where the pay has previously been in the millions of dollars. By then acting on Deming’s guidelines these new CEO’s and their coworkers could all share in the rewards created for shareholders, customers and those working in the business.

What is your company doing to deal with the disparity in pay and performance?

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