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Does More Pay Equal More Value?

There has been a lot of talk recently regarding and considering CEO compensation, especially in the financial sector, where the numbers compared to the average person’s income are literally astronomical. In my mind, it comes down to contribution.

Some companies are so well-constructed, that you could put almost anyone in the corner office and they would continue to run things profitably. Some are so inherently dysfunctional, that the most brilliant leader would founder in the effort to right them and run them logically and practically. But the average firm can benefit from strong leadership to set the tone, strategic direction, and operational efficiency that leads to success.

Typically this is a seasoned individual, with a good education, a strong network of colleagues and contacts, and enough political awareness to work his way into the job. There are some, especially in the tech sector, that don’t seem to fit this mold, but the vast majority of brick and mortar, bread and butter companies have an executive vet at the helm, one who is compensated handsomely for their work. But what do they really contribute on a daily basis?

Some lead by example, and therefore contribute as a role model and exemplar just by arriving and communicating within the headquarters office or division facility. Some lead through growth strategy implementation, working with M&A attorneys, brokers, bankers and business owners to grow the company through strategic acquisition of other firms, either to help shore up weaknesses within the firm’s core competences or expand into new affiliated or related markets. Some lead through mentoring, employee relations and succession grooming within the ranks, training and educating younger executives to move through the company with the goal of one day paying back that investment by leading the firm to greater profitability.

Those may seem like intangible approaches or qualities, but they contribute in numerous ways to the success of the company. In the case of some of the more high-profile financial firms, I’m not entirely sure the millions and in some cases billions that the CEO receives in compensation is proportionate to their contributions to the firm. In some cases, reported ad nauseum in the media, the same executives responsible for driving the profitability out of the firm are the ones now reaping even greater rewards, while the stock holders and general public flounder trying to make ends meet.

There has been a theory advanced that the CEO shouldn’t receive more than ten times what the lowest paid worker receives. For manufacturing companies that outsource production work to third-world countries, that compensation could be very low indeed. While the mechanics of the theory need some fine tuning, the sentiment is borne out of an innate sense of fairness, an internal gauge of “rightness” and correctness that we all possess when assessing such things. If you still go to the same office I do every day, do basically the same work, maybe among a more wealthy group of people, do you really deserve 100 times more than I do in compensation for it? – not likely.

Someone ought to do a correlative study cross-referencing the national journalists list of the top 100 best companies to work for, against the top 100 highest compensated CEOs, and see if there is a correlation between compensation and how the workers rank the company. My guess is the correlation would be rather low, and here’s why. Companies that are “Great” to work for usually provide a wide range of outstanding personal benefits, ranging from free child care to extra days off, to paid education, to personal loans, to flexible hours or work-at-home options to help better balance personal- and work-lives of the employees. Those benefits sometimes have expenses attached to them. Places where the CEO is extremely highly compensated are driven by profitability and sales volume, rather than work-life balance for the rank and file – different motivators, different cultures, different definitions of the word “Company”.

Let us know what your definition of the word “Company” is from a cultural standpoint and whether yours is a “great” place to work, and how much your CEO is compensated, and we can compile the results and see if our theory holds water. Can’t wait to hear from you . . .

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About David Poulos

Speaker, Consultant and Author David Poulos is known as the Marketing Doctor because of his proven ability to accurately diagnose and prescribe the most effective solutions for successful business growth with absolute surgical precision.

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