Chief Executive Pay Needs to Get Real
This post is in three parts. Parts I and II were originally posted on May 5, and they are titled, respectively, The Ideal and The Deal. Part III, which appears here for the first time, is titled The Real.
The extreme income gap between chief executive officers and nearly everyone else has a corrosive effect. Under the best of circumstances, when a rising tide has lifted all boats, the impact is diminished. But, in general, the divide between those at the top and those lower down results both in lower morale and in lower productivity. Moreover it cuts into the commitment of those who feel, literally, shortchanged. As Harvard Business School professor Rakesh Khurana put it, “The greater the inequality, the less willing employees are to learn specific company ways of doing things that aren’t going to be useful to their next employer.”
Meantime many, if not most, CEOs seem oblivious to the restiveness. At a minimum, they do not seem to care about how different their lives are from those of the overwhelming majority in their employ. They do not seem to care about the concerns of the many, especially in times of escalating costs of basics such as food, gas, education, and health care. This is not good leadership. In fact, as I indicated, this is not leadership at all, not by any of the conventional definitions.
While the increase in pay to chief executives has been geometric, it happened over thirty plus years. Resistance to the increase has been similarly slow to grow – until now. Now the pace of protest is accelerating.
• Both old and new media are focusing on the issue of excessive executive compensation.
• Both old and new media are focusing on the larger issues of stagnant wages, America’s shrinking middle class, and the dismaying disparity between America’s superrich (the top 1 %) and near everyone else.
• Increased pressure from investors, lawmakers, regulators, and boards is cutting into the capacity of CEOs to set their own pay.
• Shareholder activists are getting bolder as they get angrier. This proxy season more than 90 companies are facing resolutions by shareholders incensed at corporate “leaders” – at highly placed hired hands too greedy for our own good.
• Aiming at executive pay is not only an American phenomenon. One of Germany’s leading parties, the Social Democrats, recently made exorbitant pay a political issue; they proposed limiting CEO earnings to about $1.6 million a year.
My name is not Pollyanna. I have no illusions about big change in the short run. But this train has left the station. Real leaders will get out in front of this issue, if only to avoid being dragged down and out by “followers” who won’t take it any more.
Read the original here, by Barbara Kellerman @ Harvard Business Publishing