CEO Pay – A Friday Not So Funny
By Michelle Malay Carter on February 7, 2008
If you’ve been reading all week about felt?fair compensation, then what I am about to say has already probably occurred to you.
Not All CEO Roles Are Created Equal
Not all organizations have an equal number of work levels.? As an organization becomes more complex, more work levels are necessary to carry out the strategy, and correspondingly, the level of cognitive capability required to lead the organization increases as well.?
A single, Mom and Pop corner store might hum along nicely with two levels, and correspondingly, could be run by a Mom or Pop with level two capability.? If Mom and Pop decide to open multiple stores, the complexity of the organization will increase, and this may require leadership at level three.? As a rule of thumb, single business units with multiple functions generally require level 4 or 5 leadership.
Organizations that overarch multiple business units will have 6 or 7 levels of work embedded in them.? Only the largest organizations on the globe – Walmart, GE, GM – qualify as level 8 organizations.
Level 8 Pay
Using Elliott Jaques’ felt fair pay differentials table below, you see that within a level 8 organization, the CEO role at the top should not be more than 100 times the rate of pay of the person on the floor level.?
As such, if Walmart starts employees at $10 an hour ($20,800/ year), then, in all fairness according to felt fair research, the CEO of the largest organization in the world should not make over $2.08M.??
I guess I’ve been desensitized because $2.08M seems a little low to me.? Maybe I’m just in a generous mood, but I’d be willing to give him over twice that.? $5 million would sit well with me for Walmart Chief Executive Lee Scott.? It is a big job.?
As it turns out, Mr. Scott’s??total pay for 2007 was $23.3M; eleven times the felt fair rate.
Equitable Differential Pay
|
Work Level |
Time Span Begins At |
Differential |
Sample Salary |
|
8 |
50 years |
32X |
$1.92M |
|
7 |
20 years |
16X |
$960K |
|
6 |
10 years |
8X |
$480K |
|
5 |
5 years |
4X |
$240K |
|
4 |
2 years |
2X |
$120K |
|
3 |
1 year |
X |
$60K |
|
2 |
3 months |
55% |
$33K |
|
1 |
1 day |
31% |
$18.6K |
Assorted Other CEO Pay Facts
The CEO of a Standard & Poor’s 500 company made on average $15.06 million in total compensation in 2006, according to a report by The Corporate Library.The Canadian Press reported in January?that Canada’s top CEOs now make 218 times as much as the average Canadian full-time worker, compared with only 104 times as much in 1998.
Something smells here,?and the wind is blowing from the boardroom direction.
I’m OK.? You’re OK.? Let’s fix the system.
Filed Under Accountability, Corporate Values, Executive Leadership, Felt Fair Compensation, Requisite Organization, Work Levels
Comments
5 Responses to “CEO Pay – A Friday Not So Funny”
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Michelle – what a wonderful perspective on what seems fair from a pay perspective. It is very hard to truly get engaged employees when the gap is so large. Thanks for writing about this and reminding us that something needs to be done.
Judy,
Welcome. Thanks for stopping by. Yes, there’s no way around needing to pay employees fairly if you want engagement.
Regards,
Michelle
I’ve been thinking a good deal about this since you began the conversation. Some of my work is in film. The technical side of our business is unionized, so there are tiny pay raises as you go up in responsibility. Then, there are HUGE jumps in pay for producers and some of the key people we refer to as “above the line.”
You hear a lot of griping about the above-the-line/below-the-line pay differential on most sets.
However, some producers work on a project for years, seeing it from inception to promotion, while other employees work only during what we call production, a span of about 3 months or so.
Other high earners do not work as long and still make a great deal more money, and these are the positions I have trouble figuring out.
Obviously, the person in charge of photography (the DP) has to have a larger vision than the person safely rigging a light at the DP’s direction. But, the DP may only be on this job few weeks longer than the person who rigs the lights, yet could make 5x more money.
I’m still trying to figure out how my business fits this model because it is project oriented, and more challenging to measure using time span.
Have you addressed this concept in other project oriented businesses? Is there an aspect of this conversion that relates to experience?
Heidi,
Thanks for stopping by. That’s a good question.
Jaques’ RO model to include time span applies within managerial hierarchies. It will not be as useful in your situation where you are hiring freelancers and independent consultants for a single project.
Time span of discretion will provide you with the work level of a ROLE within a hierarchy. You cannot use time span of discretion on a single TASK.
For example, a client might hire me to come for one day to lead their line managers through a talent pool evaluation to assess their benchstrength. Even with the after-the-event data input, analysis, and report writing, this ends up being only a one month project. Using the time span model (inappropriately), that would mean that someone currently capable at level one could do the work. This is simply untrue.
In the book Requisite Organization, Jaques did tinker with trying to determine work levels embedded in single projects by describing work levels, see page pair 72.
But whereas time span is a scientifically validated way of measuring the complexity of a role, here is what Jaques has to say about trying to determine task complexity. “This procedure is a subjective descriptive process. I do not know of any way, as of yet, to measure objectively the complexity of a task or program. Work with colleagues has been proceeding explicitly for over 10 years now to solve this problem, but no solution is as yet in sight. It will be a very big step forward if and when we do succeed.” (1998)
Sorry I couldn’t be more help on this one.
Michelle
As Michelle has said, Jaques proposed time span as an actual “measure”. Longer time span meant higher complexity. Time span crossing over specific values marked discrete changes in the type of complexity of the work. While, as indicated, time span does not apply to the work that Heidi described, there is a way to make judgments of the level of complexity of that work. That way involves understanding the nature of the work at each level.
Glenn