CEO Pay – a board-made monster

Much has been touted about the runaway compensation of the Chief Executive Officer. But haven’t we created this monster ourselves, by placing more power in the head—or the figurehead—than what is required?

The Corporation, and by extension the CEO, is governed by a board of directors, but in recent years this august body has tended to abdicate responsibility by delegating it all to their “man” or “woman” in the hot seat, bribing the CEO with ludicrous perks, while pocketing fat cheques themselves for only showing up at obligatory meetings and nodding contentedly at their chosen one’s cleverly positioned strategic plans.

The CEO has also capitalized on this position of power. With a captive board, she has made herself indispensible, commanding salary and benefits far in excess of the effort expended. A wily CEO may argue that lil’ol’me knows nothing of her onerous job; that I do not have to jet about the world attending meetings with difficult people (including hostile governments, angry customers, pesky journalists and flighty stock markets), that she has a short shelf life given how her performance is judged from quarter to quarter, that she has to give up valuable time in her private life in order to perform her job. But is that a justification for making 331 times what an average worker is making (according to Forbes Magazine’s report on CEO salaries from April 2014)? Isn’t the average worker also dealing with angry customers, facing a lay-off due to a quarter’s bad performance, and coping with work-life imbalance in order to “do more with less” in this current environment? Sure, the CEO’s job is tough, but 331 times tougher than Average Joe’s? Gimme a break!

The modern corporation has replaced the former royal court. The CEO is the King; the COO is the heir apparent, anxiously biding his time to step in and take the throne at the earliest opening; the VPs are the fawning courtiers who will never contradict the King but will pass his orders down the chain of command. Outside the walls, enemies vie for control of the kingdom; we call them The Competition these days. A CEO who misrules his kingdom (poor strategy) or who fails due to being overtaken by the competition (product obsolescence) is expected to fall on his virtual sword, take a handsome severance from the royal coffers, and start life again as the ruler of another kingdom. Decision making has bubbled up to the top. Every decision that is made in the lower echelons has to be “run by” the CEO’s office. And the insecure head can make sure that no decision is decentralized, creating a state of stasis until he can attend to matters himself.

A figurehead or a face that represents the corporation is required, the experts say. The guy who stands on the stage at the annual sales conference and struts his stuff, hands out rewards, and gives rah-rah speeches to rally the troops towards next year’s even more elevated goals. But why not hire a clever actor for that? And at a much reduced price? But we need a fall guy, is the counter argument, the person who is not expected to know everything that is going on in a company but who is expected to take the fall if something juicy and embarrassing leaks to the press. Why not hire a sacrificial lamb from the penal system, then? Someone on Death Row, for instance, who could, after performing this job, leave behind a monetary reward to his kith and kin?

CEO fixation could be minimized if the board develops the strategy for the CEO to execute. Hence the term chief executive officer: one who does, and who is an officer (i.e. one who has authority within a hierarchy, but who is not the King). There will be countless counter-arguments to this proposition to say that “management by committee” will be too slow to cope with the exigencies of the market, but a strategy is not something that needs to be visited every hour of the day. A sound strategy should endure for at least a quarter, if not, it is merely a tactic. And if the strategy is unsound and fails, let there be a rogues gallery of board members going to the guillotine instead of just one solitary sucker.

When CEO compensation is touted as a problem, I shrug and say, “This is immensely fixable. Fire the board and start all over.”

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