James Frank Solís: Are executive salaries too high? (2b)

06 October 2006

Are executive salaries too high? (2b)

5:20 PM

Now, on the view of some, the aforementioned package offered to Mulally probably represents executives setting their own salaries. After all, Ford’s board of directors is composed of other executives; and Mulally is an executive. But in actual point of fact, Ford offered all this to Mulally not because they had all this money laying around and had a choice between ‘sharing’ it with the hourly wage employees or ‘throwing’ it at another executive, or even because they are all cronies, the best of buds, throwing money at each other for kicks and giggles, but because they need a President who, hopefully, can pull Ford out of it’s slump of mounting losses and dwindling market share. (Lest we think that Ford’s woes are strictly due to mis-management somewhere, Puegot-Citroen also has similar problems.) Mulally had a fine and good paying job over at Boeing. If Ford wanted Mulally, they were going to have to offer him something more than he had at Boeing. And what he had at Boeing was a package amounting to $9.96 million (less than most of those celebrities I mentioned above), which included a salary of $825,000.00, $7.58 million in long-term incentive payout, a $736,000.00 annual bonus, restricted stock awards, and other benefits. Okay, so the loss of this compensation is what the aforementioned $11million was for. I guess it’s okay that Ford wanted to exceed that loss by $1.04 million dollars. In all, the package offered Mullay amounts to 85 percent more than the package he received from Boeing. Too much? I don’t know. It is, after all, Ford’s money.

What some seem to overlook is the fact that, as I’ve already mentioned, boards of directors have every reason to keep executive salaries, like hourly wages, as low as feasible. Ford is in trouble. Ford’s board, one would think, has better, more important things to do than throw money at other members of its class or group. Mulally better deliver the goods. And if Ford’s board doesn’t know that they have better things to do than throw money at other executives I’ll gladly accept a seat on that board and remind them. In fact I’ll willingly serve on the Compensation, and Environmental and Public Policy committees. It’s probably a well-paying job, but someone’s got to do it. It’s okay; I don’t mind. No need to thank me: I’m selfless like that. (One thing that does trouble me is that Ford’s Compensation committee is devoted to executive compensation; they have no committee on hourly employee compensation. On the other hand, the UAW probably has that task well in hand. Given that union wages are indexed to the minimum wage, one could say that between Congress and the UAW Ford has no need of a committee on employee compensation.)

In the above-mentioned article, Professor Palaima asserts that greed is the reason that the pay gap is so out of proportion. I’m sure greed plays a role, perhaps even a large role. Even if I were to go so far as to agree that greed plays the only role—so what? Is the problem, as Palaima asserts (echoing Drucker, who in turn is echoing, Morgan), that income disparity causes social tension? Leaving aside the aforementioned problem with causality, there is another problem with this argument. Asserting that income disparity causes social tension really doesn’t connote the ethical problem which Palaima and others seem preoccupied with. There is a difference between saying that income disparity causes social tension and therefore ought to be avoided (i.e., as a means of avoiding social tension) and in saying that the greed which is behind income disparity is ethically wrong. When Palaima writes about income disparity (and about the salaries drawn by athletic directors) he writes as if those who are behind this (i.e., the cronies) are doing something wrong. If that is the case, then social tension as a result of income disparity is irrelevant. Income disparity, especially if motivated by greed, is wrong.

Of course, Palaima could claim that it is social tension that is wrong, and that by logical extension the causes of social tension are wrong. For whatever it’s worth I find that logic unassailable; and I have to grant Palaima the strength of that position. But then we’re assuming that social tension is ethically wrong, that there is some universal ethical requirement that is violated by the existence of social tension. On the other hand we might just be saying that we don’t like social tension, and certainly avoiding income disparity would go a long way towards avoiding the social tension we don’t like. But I doubt that this is Palaima’s view, because if it were then he’d have to stop writing as if this is an ethical problem. It isn’t. Circumstances which we simply happen not to like do not constitute ethical problems.

Having said all that I’m not as quick as Professor Paliama to chalk it all up to greed. Greed would make these executives morally culpable, but only if there is some moral standard which executive greed violates. Maybe they are greedy. I don’t know. Greed is a state of mind, an attitude towards money, specifically a love of it for its own sake. I don’t know what these executives love. Nor do I believe that I can deduce what they love from what they earn. What they earn tells me nothing. I would need to know what they do with their money. And I don’t know. I haven’t asked, because I don’t think it’s my business.

I believe the real problem, as opposed to greed, is a problem in the soul. Many executives have technical degrees, whether in business administration or in sciences such as engineering or computer science. But they are low on liberal arts education. (Lee Iacocca pointed this out in his autobiography, which I read in the Army.) The fact is these executives know how to do the jobs their technical degrees have prepared them for; and doing these jobs earns them a great deal of money. They know how to make money. Perhaps one could say that all they know is how to make money. They are numbers people, and they keep track of numbers. Numbers tell them, among other things, where they are in life. It’s what they know. I neither blame them nor pity them. I simply acknowledge this as what I believe to be a fact.

Everyone is greedy to a certain extent. I think the real problem with executives is that they stink at leadership because they are merely technicians. In their own fast moving, aggressive Nicholas-Cage-in-The-Family-Man style they are stereotypical geeks, with all the people skills that one associates with the stereotype. Depending upon the path they traveled to the executive ranks they are trained in engineering, finance, marketing, and so forth. Their training consequently is, as I’ve already mentioned, lacking in the liberal arts. Most of them, in my personal experience and from research, seem not to know much about human beings—especially what motivates them. And that is just the sort of thing that they might have learned—if they’d have determined to learn—from a long, cool draft of humane letters. They seem to know how to make and move product, but not too much about how to move people. They seem largely unaware of the fact that many or most will endure hardships if their leaders will also endure those hardships—or at least some—with them. I was reminded of this just last night while continuing my re-read of Plutarch’s (Roman) Lives. Last night I read this passage in his Marius (7):

That war [i.e., the Jugurthine War], too, affording several difficulties, he neither declined the greatest, nor disdained undertaking the least of them, but surpassing his equals in counsel and conduct, and matching the very common soldiers in labour and abstemiousness, he gained great popularity with them; as indeed any voluntary partaking with people in their labour is felt as an easing of that labour, as it seems to take away the constraint and necessity of it. It is the most obliging sight in the world to the Roman soldier to see a commander eat the same bread as himself, or lie upon an ordinary bed, or assist the work in the drawing a trench and raising a bulwark. For they do not so much admire those that confer honours and riches upon them, as those that partake of the same labour and danger with themselves; but love them better that will vouchsafe to join in their work....

There just seems to be so much about human nature that executives do not know. And it’s ironic when one considers how many of them will boast of having read Sun Tzu on the art of war. Just like a technician, isn’t it, to think he’s learned something valuable simply by sampling a general? They can all say, “Know your enemy as yourself and you will win a thousand battles.” Neat. Caius Marius and others knew how to win battles; and they knew how to earn the personal loyalty of their soldiers. What concerns me is not executive compensation packages. The people paying those salaries are the ones to determine whether they are paying too much for what they get in return.

What concerns me is how ignorant, or indifferent, executives are to the plight of some of their employees. I wouldn’t turn down the package that Ford proffered to Mulally. But I would be ashamed if I discovered that even one of my employees was having difficulty paying some of his bills—especially medical bills—while I was able not only to own a multi-million dollar home but wash down my $150 per person meal at Ducasse’s with some $2,500 per bottle 1982 Chateau Margaux!

There’s a quote in a passage I recall reading in one of my parents’ business textbooks (my parents are business people) that goes something like this: Societies do well when their men of business think highly of their profession.

Perhaps executives should put down Sun Tzu for a while and pick up Plutarch.

Are executive salaries too high? (2b)

0 comments:

About Me

Blog Archive