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Friday, September 9, 2022

Why is a CEO worth that much?

Why is a CEO worth that much?

Allen Laudenslager


The common wisdom is that the amazingly high paid CEO has unique skills and talents that command that kind of pay. The combination of skill is so hard to find that in order to get that particular person to come to work for this company they have to be paid that huge amount of money.


Let's look at that logically for a minute.


According to the Social Security Administration 134 people earned more than $50,000,000 in 2014. If we accept that they are being paid for their unique combination of skills and talents, then no one else could do their job or was willing to work for less money.


According to Wikipedia, the world population was 7.5 billion people in April 2017. That means that only those select 134 people or 0.00000008% percent of the world’s population could run those companies!


The United States has a total population of 321.4 million people. Adjusting for years of experience and education I estimated that approximately 27% or a little more than 8 million people are potential candidates for those 134 jobs. Yes, a lot of those are not in the right business to count, and many just haven’t gained the experience yet but that still seems to leave a huge pool of potential candidates with the right experience and training.


Out of that 8,000,000 people lets say that only 25% are in the right business, that’s still a total of 2,000,000 candidates to choose from. Some percentage of those haven’t been working long enough to gain the experience to lead a big corporation so let's cut that pool down by 2/3. That still leaves 660,000 potential candidates.


Not everyone want’s to be the CEO so let's say only 10% even want the job, that’s still 66,000 people who should be considered. After you interview those candidates, you think only 1 in 50 are real candidates that still leaves 98 people (13,200/134) who of whom could do EACH those 134 jobs. Does anybody still believe that all of those 98 people wouldn’t do the job for significantly less than $50 million a year? 


Does anyone still believe that market forces (supply and demand) really set those enormous salaries?

Tuesday, September 6, 2022

Communication

Communication 

by Allen Laudenslager


The military rank of naval Captain carries heavy responsibilities since they are the highest  authority aboard a major warship. A lot of the view of a naval Captain’s authority is a legacy from the days of sail when the ship that Captain commanded was the fastest means of communications in the world.


This meant that the Captain was often dealing with foreign governments without the ability to ask his own government for instructions. He had to be trusted to make decisions on his own. This in the days when his poor judgment could catapult his nation into war!


Communications haves changed so that a Captain is in almost instantaneous contact with his higher command and can check for instructions in real-time. The problem arises when the higher command, relying on a summary, isn’t looking at all the key factors that might be obvious to that Captain on the spot.Scott Adams nailed it in the Dilbert panel.


Have we reached a time when communications is so quick that too many of us are not doing the fundamental research and background reading that good decision making demands? Because we can quickly and easily contact subordinates have we pulled back their scope of decision-making thus restricted their ability to innovate and respond to changing conditions?


I remember doing a briefing for a senior manager shortly after I had been promoted from operations to my first “staff” job at the corporate headquarters. The person I was briefing didn’t seem to get my point so I used a white board to illustrate the fact that we were taking a serious amount of time and effort to maintain one piece of first generation equipment and 2 pieces of generation two equipment. All the other equipment had either been upgraded or replace with generation 3.


Since the equipment was customer owned, he ask how that had happened and the answer was quite simply that some equipment had been missed during the upgrades but the contract demanded that we maintain the equipment in its existing generation.


As the conversation progressed, he asked, “why didn’t I know this” and I referred him to the memos I had been filing with my reports asking for guidance on the problem. His reply is illuminating – “I didn’t understand the impact of what you were saying”. He didn’t understand because he was too far from the action. In effect, he could only see the forest and he needed to look at the individual trees. Oh, Yes — he only read the cost breakdown and never looked at the rest of the memos.


He was reading the executive summery and not diving into the supporting details because he thought it was “too much information”. His attitude was summed up by a comment he made earlier in the briefing; “I asked you what time it is and you tell me how to make a watch”. 


He did need those details (the how to make a watch) to make an informed decision but his impatience with that level of detail lead him to ignore the supporting information. He also decided that he didn’t need to take the advice of the person on the spot to invest in upgrading the few pieces of equipment to save even more money on the cost of maintenance.


Using the naval Captain again, the person closest to the action (in this case me) had the best knowledge of the situation and the best solution.


Senior management’s job is to balance the immediate need against the long-term-need but, and that is a critical but, without meeting the immediate need you may not survive to get to that long term. If higher command is only focused on one aspect of the business (short term share price?) they are likely to avoid spending money on long-term elements that the person on the spot will recognize as important to next month and next year.


As we move away from promoting operations people to senior management and rely more and more on hiring managers with deeper academic training and less industry or company experience the necessary details can get lost.


Can those non-operations people be effective mangers? Of course, but just as the boss in the Dilbert cartoon doesn’t have the knowledge to judge what he needs to know the key is to trust your subject matter expert. 


When I was promoted to management I learned that I no longer had the time to be an expert in all areas of a project and I develop the following axiom “I trust my subject matter expert or I get a new one!” 

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