As you would expect, my interpretations of the articles referenced by Herd Enuff’s comment are much different than the musings of the young lad known as the Velvet Hammer.

I’m assuming the young lad chooses to ignore the aforementioned differences between the private and public sector for a reason. Perhaps it’s because of the harsh realities of situations like the Enron scandal. Or maybe the real need for legislation like Sarbanes Oxley, or the latest SEC disclosure rules – designed to protect the “average” investor from greedy C-level execs. Unless you’re a strict libertarian, you’ll have to admit that you enjoy the benefits of our “horrible government intervention” every day.

I also don’t buy the implication that these greedy types are the only ones that could be effective in these positions. If so, how do you explain the highly effective people that aren’t under media scrutiny for excessive compensation.? Perhaps their reasonable compensation is the result of the very market factors to which you subscribe – who knows for sure?

I do know that our musings won’t change anything. I’ll agree that at the end of the day, our free market will have a major impact on the compensation issues we’ve raised. Unfortunately, the pressure will NOT come from individual investors like us, but from the major fund managers and institutional investors. That’s where the influence resides.

So, in the sales management world we choose to participate in, let’s return our focus to building compensation plans and sales organizations that are motivated, successful and proactive in selling.

I think we can agree on that?

P. S. The only pro athletes that are worth their contracts are hockey players.

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I am attempting to stoke this fire some more with Red Bird. One reader posted a comment to yesterday’s post stating this:

You guys must be living under a bush somewhere back east. Have you ever heard of the golden parachute? Show up, don€™t do anything, get fired and walk away with millions. It€™s great gig if you can get it.

Chew on this
http://www.washingtonpost.com/wp-dyn/content/article/2007/01/03/AR2007010300553.html

or this http://blogs.wsj.com/deals/2007/04/10/a-53-million-golden-parachute-for-sprints-forsee/

Fair enough – I know this is an emotional topic for many people. However, emotions are not the best option for rational decision-making. I think most people will agree that CEO’s do more than “Show up, don’t do anything, get fired and walk away with millions.”

I “chewed on” both article links and want to highlight a couple significant items from them. In regards to Bob Nardelli (topic of the first link):

He has succeeded on many fronts, even as he fell short on others, and in recent years found himself defending his hefty salary. Revenue has nearly doubled, to $81.5 billion in 2005 from $45.7 billion in 2000, though that figure fell short of his goal of $100 billion. During that time, profit rose to $5.8 billion from $2.6 billion.

Not bad. Admittedly, the stock price has not followed this revenue and profit growth. I think the hesitancy from the street has more to do with the cooling housing market as opposed to Home Depot’s revenue performance. I am impressed that he doubled profits in 6 years. What company wouldn’t desire that profit growth? From what I read, Nardelli’s real downfall was his lack of communication ability which ties in nicely to my earlier post.

If you don’t know his history, he was one of 2 top executives to succeed Jack Welch at GE. Welch chose Jeffrey Immelt instead because of his communication ability. Nonetheless, the street was going to pay a hefty price for Nardelli based on experience. Home Depot’s board chose to pay for Nardelli. Note to Red Bird – I am not aware of any of Nardelli’s cronies being on Home Depot’s compensation committee.

The second article link references the CEO of Sprint Nextel. I am a former Sprint stockholder but I sold the stock since that industry is difficult to predict. I think the Nextel merger was a mistake – maybe knee-jerk reaction to other mergers.

Forsee has been under fire from investors since, as the head of Sprint, he orchestrated the company€™s 2005 merger with Nextel. The deal hasn€™t lived up to its billing, with subscriber growth slowing and Nextel€™s creaky network taking a toll on call quality. That has helped drive down the combined company€™s stock 26% since the deal was closed.

A number of Sprint investors say they expect Forsee has another quarter or two to show some progress turning the ship around before being shown the door. Should he get the boot, the severance payment would represent a surcharge for investors, if you will, on top of the $20 billion in market value that has evaporated since the merger.

Bad deal and a serious market value “evaporation” (glad I sold the stock). But take a closer look at the specifics of Forsee’s package:

Most of the value of the package, $43.2 million, comes from the accelerated vesting of options and restricted stock. Forsee gets the money only if he€™s forced out €œwithout cause€ or suffers a €œconstructive discharge,€ as defined by his employment contact. The payment was calculated at the end of 2006, when the stock was at $18.89. (It closed at $19.33 today.)

A couple of important points to the severance package, wouldn’t you say? This money is not guaranteed to him. Simultaneously, he gets more if he increases the company’s stock price. Those conditions seem reasonable to me.

The final point for me is simple – why should I get upset over a CEO’s compensation? How does Nardelli or Forsee getting less money than what they received affect me in any way? They negotiated their compensation packages and the company agreed to pay them that amount.

The final question that I posed to Red Bird last week was this – If you want CEO compensation capped, who is the arbitrator of the cap? Who determines what is reasonable and what is excessive?

If your answer is the government, I have much more writing to do.

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Communication is the balm of corporate success in that it helps maintain cohesiveness. I have worked for companies that had excellent communication throughout the chain-of-command. Although there were problems and disagreements, communication from the leadership team was always thorough and timely. That fact made the culture far more pleasurable a work environment.

In many companies, this need for strong communication is devalued. MarketingProfs.com has this article – Wanted: Leadership and People Skills. The gist of the article is the need for finding CEO’s with strong communication abilities.

When asked “what do you look for when recruiting talent” at the recent Leaders in London conference, Richard Branson gave this answer: “People who are good with people. If the person at the top cares about the person cleaning the floor and the people on the switchboard, then everyone comes alive. If the people at the top are not good with people, then it ricochets down and the culture of the organization is miserable for everyone.”

Notice that Sir Richard didn’t say “people who graduated with top honors from the most prestigious B-schools, and who truly understand the financial and competitive demands of business today.”

Executives have to be able to interact with and manage their own personnel if they are to foster their core beliefs about the company in those people and nurture the corporate brand. They also have to be willing to listen to their employees, who are much closer to “the action” than the executive branch.

How true. I’ve always believed culture flows from the top down. What I mean is that the majority of my perception of the corporate culture is formed from my interaction with my boss. And his or her perception of the corporate culture is formed from his or her interaction with their boss. And so forth. If the CEO provides a strong communication culture, it trickles down through the entire organization.

Companies where the CEO does not have strong people skills or communication ability tend to be stiffer – more likely to have a mechanistic culture that does not promote fluid communication. It has been my experience that these companies are more secretive, hierarchal and withholding of information.

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