A Good Citizen of Humankind

Executive Pay

First, I don't like anyone getting a million dollar pay check, much less 10 million, or an indecent 100 millions a year. I refuse to believe someone is 10 times smarter than me, much less 100 or 1000 times smarter than me. Or 10 to 1000 times more valuable to society than me. First, I am a pretty smart guy, so 10 to 1000 times smarter than me is really, really, really, mind blowing smart. And 10 to 1000 more valuable to society than me, I doubt it.

Could I do an executive's job that gets paid 10 to 1000 more than me. Of course, I think I could. I also believe, of course, that I will never get a chance to prove it.

Capitalism is supposed to give back based on one's value to society. Well, not really you argue. Perhaps, it is more of a supply and demand thing. There is a shortage of good leaders. A lot of cash keeps chasing a few good men. The problem is, that we don't know who the few good men are. If the company fails, perhaps the game was un-winnable. If the company flys high, perhaps it was just the right time and the right place and the executive had nothing to do with the success. The trouble is, no one knows. But, the perception is that if you don't have the right guy at the top you are doomed. Lee Iacocca seemed like one of those guys that was worth the bucks they paid him. He certainly had the right stuff to save Chrysler for awhile. The question is, what percentage of people that would have been hired into this job would have accomplished the same thing. Certainly not all of them, but 25% of them, or even half of them, perhaps. The trouble is, we don't know. And if he had failed then we wouldn't be using him as an example, would we? Take Enron, do you want to nominate any of the Executives in Enron as GREAT leaders?

In my experience, most executives are just in the right place at the right time. Most are not significantly more brilliant or humble than me. But, they are in the Club, I am not. Yes, there is a Club at the top. The good old boy's club. They take care of each other. They occasionally adopt a new member that they believe can help to make them richer. Of course, I have never really met a member of the Club that is also an entrepreneur -- Entrepreneurs don't usually want in the Club since they a more independent personality type. Ya, I have met a few entrepreneurs, some of them pretty good. And none of them would have been accepted in the Club. One they don't need to be, and if anything they make a new Club. Clubs are made to get from corporations what entrepreneurs give to corporations.

Bill Gates. Entrepreneur turned philanthropist. He is someone that realizes that even in his brilliance he does not deserve a life with billions of dollars. Kudos to him. Just think, someday he will be down to his last billion. But, on the journey, hopefully the world is a better place. Of course, we all have that option in our own way. Perhaps it is not billions that we have to give away, but it is certainly more than most of us do. We are wealthy by any standard you want to use, from a historical or a geographical perspective, or some other. Since in these days, we are judged mostly by what we have, we lose some of who were are, of what we are worth as humans, by giving some of it away by our stupid standards. We of course, don't think this way, but we act this say, so I would argue that we believe this to be true. Give a dime away, we are worth less, both financially and morally. Proof me wrong by setting up regular payments to go to a cause that is more important than you rear pocket. Not tomorrow, today. I digress.

Quantum physics. If you plotted human abilities of any type, from those that have little of that ability, to those that have the best of that ability, you would find a more less continuous progression of abilities. Take Michael Jordon in basketball. Probably the best. A 10 on a scale of 10. Koby Bryant, Russell, Byrd, Magic all between 9 and 10 on that same ability curve. Some of MJ is legend, some of it is his team mates, some of it is being at the right place at the right time -- he was almost always given the last shot when the game was on the line. His percentage success at those times, I don't know -- it was probably higher than most other great players. Anyway, go down to the 8 to 9 on the ability scale and all the sudden there are thousands of players. Most executives are the 7 to 9 ability range, given that Bill Gates is a 10 on the ability scale. I have met a few sixes even that made it into the Club. I would put my own ability in the range of 8, perhaps 8.5, at my peak. Conceited perhaps, but honest. But, I don't matter. What matters is that there are millions of people that have the average ability of executives that run both our small and large corporations. These millions will not be given the opportunity to run corporations, or the access to funds to start up an entrepreneurial venture. The chosen ones, the one that join the executive club, will make millions, while the millions that are as talented that don't get a chance will make hundreds of thousands, or perhaps only tens of thousands a year.

If I am correct about this theory, then most executive pay is a waste of good money. So, why don't the corporations just find someone that will except less money. Well for one, the ones that make the recommendations for Executive Pay, are executives. Oh yea, they are on the Board of the corporation, but they typically work as Executives in other companies and they are selected by executives to be on the Board. In short, they are in the club and they recommend others in the club. They need a few new members each year, but they control the rate at which new members are added. It is as effective as any union, for instance, the medical doctor's union, or the metal worker's union. Even more, they control the funds and the path that our corporations follow.

Even more, the Club feels obliged to destroy other Unions in the corporation. And, at this they have done well. They limit benefits to Union members, pay, etc. They form lobbyists that get critical laws changed to keep them in power. They even elect Presidents that decrease taxes on the rich, yes both income taxes and inheritance taxes. The Club is very powerful. They also control the pay of executives. How, not by coercion, but by common sense. Pay grades are published for almost every profession, for example, engineers. For instance, there is a global shortage of engineers at the moment. Has pay sky rocketed? No, it has gone up substantially, but will technical pay ever approach the pay of those in the Club. No a chance. There are definite guidelines about how much is a reasonable bracket, or grade, to pay an engineer. Of course, all the major corporations have these brackets and considering an adjustment for the variations in the cost of living in different areas, they are almost identical. And who controls the brackets, the Club.

As the engineering shortage becomes more severe, is there any chance their will be a quantum jump in pay to jump from those that are employees to those that are in the Club. Nope, with global competition it is often a choice of decreasing the pay to those in the Club, or moving overseas to get good engineers. Well, you can guess which is going to happen.
And since, the amount of engineers is not artificially controlled, the pay rate increases will increase the size of the engineering pool. Baby boomers retiring and our kids getting too lazy to be engineers are the only reason there is an engineering shortage in the first place. But, there is no mechanism for increasing the size of the Club, except by election into the Club.

How do you get elected into the Club. By doing great things for the company. Sometimes, not not usually. Most of the time you become a "yes man" with just a touch of independence. You support the Club, you manage the troops for the Club and you keep them out of trouble. You must show you are willing to put the good of the Club above all else -- the good of the company, the workers, safety, etc. if it is to protect the Club. Study the fall of Enron if you want to see how it works. Of course, Enron forgot that even those in the Club can be kicked out if they go too far. It is like a wolf pack turning on an injured member when that happens. But, I have seen the Club draw in to protect itself more than once in my career. I was always foolish enough to believe that you had to do what is right, not what the majority wanted. Little did I realize I was being tested for membership in the Club and I was failing miserably.

So, take this theory to work with you and study those at the top. We often say that they are political. Yes, they are. That is the number one requirement to be in the Club. It is very rare to see one in the Club that is not political. Other required to be a member of the Club: social, correct, clean, controlled, and supportive of management. It is okay to occasionally talk of problems with management, but never mention a specific person, unless you know that he is already on the outs with the Club, or the Club is splitting up and you are choosing your side. However, it would be better to say good things about the Club members that you are sucking up to, than bad things about the Club members you think are on the way out. Who knows, which faction of the Club is going to come out on top. There could be other Club members higher up that have not weighed in yet.