Everyone has a stake in America's big, public corporations. Either as an investor, employee, customer, supplier or community leader. So how these corporations perform is a big deal for all of us.
Unfortunately, we've all experienced too many corporations that have problems. But, amazingly, we see little change in the CEO, or CEO compensation. When one of the USA's largest employers, McDonald's, uses its hotline to tell low-paid employees they should avoid breaking open Christmas gift boxes, and instead return gifts for cash to buy gas and groceries, it's not a bad idea to take a look at top executive pay. And with so many people looking for a job, and unemployment for people under 25 at something like 15%, there is an ongoing question as to whether CEOs are being held accountable for performance or simply granted their jobs regardless.
What happens to CEO pay when things go really wrong?
Given that Scrooge was a banker, why not start by looking at bank CEOs? And who better to glance at than the ultra-high profile Jamie Dimon, CEO and Chairman of JPMorganChase.
In 2012 Mr. Dimon told us there were really no problems in the JPMC derivatives business. We later learned that - oops - the unit did actually lose something like $6billion. Mr. Dimon was nice enough to admit this was more than a "tempest in a teapot," and eventually apoligized. He asked us to realize that JPMC is really big, and mistakes will happen. Just forget about it and move on, he recommended.
But in 2013 the regulators said "not so fast" and fined JPMC close to $1billion for failure to properly safeguard the public interest. The Board felt compelled to reflect on this misadventure and cut Mr. Dimon's pay in half to a paltry $18.7million. That means in the years when things went $7billion wrong, he was paid something like $37million and then subsequently another $19million. His total compensation for 2 years, during which $7billion evaporated from the bank, was (roughly) $50M.
It appears unlikely anyone will need to return gifts to buy ham and beans in the Dimon household this year.
What happens to CEO pay after a disaster has a couple of years "to settle"?
Mr. Dimon was spanked by the Board, and he is no longer the most highly paid CEO in the banking industry. That 2013 title goes to Wells Fargo CEO John Stumpf, who received about $23M. Wells Fargo is still sorting out the mess from all those bad mortgages which have left millions of Americans with foreclosures, bankruptcies, costly short-sales and mortgages greater than the home value. But, hotlines are now in place and things are getting better!
CEO compensation is interesting because it is all relative. Pay is minimally salary - never more than $1M (although that alone is a really big number to most people.) Bonuses make up most of the compensation, and are based on relative metrics tied to comparisons with industry peers. So, if an industry does badly and every company does poorly the CEOs still get paid their bonuses. You don't have to be a Steve Jobs or Jeff Bezos with new insights, lots of growth, great products and margins to be paid a lot. Just don't do a whole lot worse than some peer group you are compared against.
CEO's are almost never fired, regardless their performance
Which brings us to the whole question of why CEOs that make big mistakes - like the whopper at JPMC - so easily keep their jobs? Would a McDonald's cashier that missed handing out change by $7 (1 one-billionth the JPMC mistake) more likely be paid well - or fired? What about a JPMC bank teller? Yet, even when things go terribly wrong we rarely see a CEO lose their job.
During this shopping season, take look at Sears. When was the last time you went into a Sears or KMart store? Ed Lampert cut his pay to $1 in 2013. Hooray! But this did not help the company.
Sears and Kmart business is so bad CEO Lampert changed strategy in 2013 to selling profitable stores rather than more lawn mowers and hand tools in order to keep the company alive. Yet, as more employees leave, suppliers risk being repaid, communities lose their stores and retail jobs and tax base, Mr. Lampert remains Sears Holdings CEO. We accept that because he owns so much stock he has the "right" to remain CEO.
Perhaps Mr. Lampert deserves a visit from his own personal version of Jacob Marley. Some ghost from the past who might make him realize that there is more to life (and business) than counting cash flow and seeking lower cost financing options. Mr. Lampert can arise each morning before dawn to browbeat employees via conference webinars while micromanaging a losing business. But it only leaves him sounding a lot like Scrooge. Especially because those behaviors have not stopped Sears and KMart from losing all market relevancy, and spiraling toward failure.
CEO pay and performance are worth a very hard look
CEO pay-to-worker ratios have increased 1,000% since 1950. (How's that for a "relative" metric?) Today the average CEO makes 200 times the company's workforce (the top 100 make 300 times as much - and the CEO of Wal-Mart has a pension 6,182 times that of the average employee.)
Is it any wonder so many investors, employees, customers, suppliers and community leaders are paying so much attention to CEO performance - and pay?
We are all thankful for the good CEO that develops long-range plans, spends time investing in growth projects, develops employees, increases revenue and margins while expanding the communities in which the company lives and works. It just doesn't happen often enough.
This Christmas, as many before, as we look at our portfolios, paychecks, pensions, product quality, service quality and communities too many of us wish far too often for better CEOs, and compensation really aligned with long-term performance for all constituencies.
If you have a favorite story about CEO performance and/or pay I hope you will share it win the comments below. Where have you felt let down by corporate leadership in 2013, and what do you wish would change in 2014?
Or share your thoughts and stories by connecting with me on LinkedIn, Facebook and Twitter.
Addendum: On December 25, 2013 McDonald's decided to shut down its employee resource web site. It appears that the company realized the advice being offered may be in the best interest of employees, but creates conflicts with the company's core business.
