Friday, February 13, 2009

Bored of Directors

I was thinking why everyone is so ticked off at businesses today. Then scrolling through my blogroll, Seth Godin wrote this about the music industry. It fits into the puzzle of today's business environment.

Everyone wants to be rich. There are many definitions of rich, mainly some variation of financially independent. However, when those that are rich (CEOs of auto companies or financial institutions, for example) end up driving the business or industry into a tailspin, it negatively affects those who want to be rich. The non-rich lose jobs, cars, homes, etc. That is because the current elite will always have money, regardless of economic situation. Always have, always will. Those trying to make it up the ladder, or even trying to get to a ladder, don't have money to sustain themselves during an economic collapse.

Like the music industry, the labels are focusing on the industry, not the music. Obviously companies are in business to make money, I don't deny that. I argue that companies are focusing more on hording the big green rather than offering products and services people need or want. And companies that fail are because they lacked the leadership to do the right thing. WaMu's Kerry Killinger helped direct WaMu into a premier banking institution. His poor decisions led to the collapse of a terrific story. Where was his board of directors to say no?

I like how companies are ousting CEOs and leadership teams from failing companies. Yet I don't hear of companies replacing the BODs; they seem to be exempt from the problems and have no accountability. Heads of GM and Ford are raking in double-digit million-dollar salaries, and yet both companies have been posting losses. Last time I checked, if I fail to do my job, I get fired.

I've often thought that any publicly-traded company, the CEO's salary cannot be more than 4-6 times the average hourly worker in the company (bonuses based on profits. No profit, no bonus!). So if the average hourly wage $25/hr. ($52,000/yr.), Mr. CEO is limited to $208,000 - $312,000/yr.

That's a simplfied example, but apply the concept to recent events. Alan Mulally, CEO of Ford, has a salary of $2 million. That's 38 times the rate of the average worker, in my example. This doesn't include his bonus in stock, which accounts for over $18 million. In contrast, Steve Ballmer, Microsoft CEO, pulls in just over $600k/year, with additional bonuses of $300k. And Microsoft actually turns a profit!

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