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I continue to tilt at the robber barron CEO pay packages (2007 post on CEO pay abuses).
| 2007 pay rank |
Company | CEO | Pay | 5 Year Pay | CEO % of 2007 Earnings | |
|---|---|---|---|---|---|---|
| 1 | Apple | Steve Jobs | $646,600,000 | $650,170,000 |
| 18.5% |
| 2 | Occidental Petroleum | Ray Irani | $321,640,000 | $509,530,000 |
| 5.9% |
| 3 | IAC | Barry Diller | $295,140,000 | $512,270,000 |
| Company Lost Money |
| 4 | Fidelity National Financial | William Folley | $179,560,000 | NA |
| 138.4% |
| 5 | Yahoo! | Terry Semel | $174,200,000 | $432,490,000 |
| 26.4% |
| 7 | Countrywide Financial | Angelo Mozilo | $141,980,000 | $295,730,000 |
| Company Lost Money |
| 13 | XTO Energy | Bob Simpson | $72,270,000 | $215,280,000 |
| 4.2% |
Data via: Forbes CEO Compensation (Total compensation for each chief executive includes the following: salary and bonuses; other compensation, such as vested restricted stock grants, LTIP payouts and perks; and stock gains, the value realized by exercising stock options.) and Google Finance (using 2007 earnings - Countrywide from SEC). I realize this chart could be improved by spending more time (the effect of stock options exercised in one year distorts things a bit but the excess are so massively huge that the clarity of the data does not need to be very precise).
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Low-Tech, High Impact Innovation
Great post. My father, Dr. William Hunter, did a great deal of work with appropriate technology (he was a chemical engineering, industrial engineering and statistics professor) and in management improvement.
Often the failure to adopt appropriate technology solutions results from a combination of 3 things:
Thinking about why appropriate technology is so effective, but underutilized can help anyone improve the solutions they adopt. Thankfully the adoption of appropriate technology solutions has been increasing over the last few decades.
I would especially encourage people to stop looking for the newest management book and actually read and adopt and then re-read and… the excellent management books from the last 50 years. Stop chasing some new shiny thing and adopt solutions that are effective - even if they seem boring.
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Dogbert: “I am stepping down as CEO so I can spend more time with the money I stole from this hellhole.” Unfortunately we still have far too few people that see the obscene behavior of CEOs and their brooks brother bureaucrats as unacceptable. The behavior of many of them has been similar to that of dictators looting the coffers of their country as the country sinks into despair. The CEOs have their actions supported by a flock of board members that are also spared the condemnation their despicable behavior deserves.
I must say I am amazed at how brazenly those participating in looting companies from within are; and how it is accepted. It is a shame such unethical behavior is tolerated. It seems once companies implode their are some minor complaints about the behavior, in the specific case in question, as though it was not the accepted current practice among the many of those in positions of power (Warren Buffett being one obvious counterexample).
At some point I sure hope those looting companies and voting to support such things are seen for what they are. And I hope we don’t make excuses about how those taking what they didn’t deserve were somehow excused because they paid large sums of money to others to say such behavior was acceptable. Undermining all those that rely on a companies long term success is despicable behavior. That we accept those doing so and those board members supporting it as honorable members of society is a sad commentary on our society. I understand they feel entitled to loot when they see their neighbors buying castles around the world and helicopters and jets and… But their behavior is despicable.
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How Business Pays for its View of Human Nature by Fred Kiel makes some good points. I think he is a bit off in why the points are good, but…
I believe people are self interested and somewhat rational. However, self interest, is complex. People want to be liked, people want to be part of something good, people want to feel they are appreciated, people like having money to buy what they want… Some people like to feel better than others, some are insecure…
Thinking that people are guided by self interest and somewhat rational decision making is helpful, I believe. But that understanding complex, too often people seek over-simplified models to base their decisions upon (I now have 92 posts in the psychology category of this blog). And fearful, ill-informed, un-trained (in ways that build the capacity to make rational decisions) workers pursuing their self interest is often much more harmful than workers that are more secure, trusting, knowledgeable, committed workers pursuing their self interest. If you design your organization with what Dr. Deming called an understanding of psychology then you can make these traits work for the organization instead of against the organization.
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Response to LinkedIn question: “Whether Six Sigma as a quality tool really delivers the benefits ? How does it makes difference from a common sense approach ? (Where the process wastes and the required solution is known / can be easily identified just by applying common sense)”
Six sigma (or another management improvement method) can help in several ways. First, lots of things that are sensible are not done. A method to assure that more sensible things are done is useful.
Second, many things are sensible, but are not sensible when looked at in isolation (sub-optimization). Six sigma can (not does, can - sometime this won’t happen) assist those in the organization to evaluate from a larger context than they normally do. So instead of say the IT department forcing everyone to use some poorly designed software because it is the cheapest thing for the IT department to support the added costs to the rest of the organization are more fully considered.
Third, many things that are sensible are not evaluated based on their sense but instead based on internal politics… A standard methodology can help focus people on the merits of a proposal instead of who said it (again six sigma can do this, often it fails as the organization continues to cling to old patterns of power over sense).
Fourth, many of the tools, go beyond what sensible people alone see (design of experiments, understanding variation, PDSA, systems thinking, root cause analysis). Using the tools can often lead to valuable discoveries that were not obvious without using the tools.
If the solutions were obvious why were they not done last year? It is true that there are often plenty of simple improvements waiting to be adopted because management has done such a poor job that obvious improvement are left undone. But once sensible management is in place, eventually those obvious improvement will be done and a more structured approach to finding improvement is valuable. Even simple concepts like letting those that work on the process improve the process are often ignored by organizations (even those saying they are doing six sigma, unfortunately). So I see a strong value in adopting management improvement principles and tools.
Related: Management Advice Failures - Improvement Tools and Improving Management - Six Sigma Pitfalls - Why Isn’t Work Standard? - European Blackout: Not “Human Error”
To Motivate or Not to Demotivate
Note: Frederick Herzberg also tells us that motivation is an intrinsic thing, which means that you actually cannot directly motivate a person. You can only try to influence their motivation. That’s true. But it also applies to people’s demotivation. And therefore I only consider it just a semantical issue, that bears no relationship to the motivation-vs-demotivation issue.
I still think eliminating de-motivation is the better way to look at it.
I still see far to many managers thinking in a theory x way - 50 years after McGregor’s The Human Side of Enterprise. If there was not such a systemic failure to apply effective management practices and such a desire to substitute motivation for management I wouldn’t see this as a big deal. The issue is important to me because their is a huge amount of poor management based on how people view the need to fix how people are motivated instead of fixing what management really needs to fix (see all the links in the related section at the bottom of this post).
“eliminating demotivation” is a too simplistic view
I would say a party doesn’t really motivate people. But it can (taking psychology into account) gain advantages by helping bond people to each other, letting people feel good as they form social relationships, build trust with others… They can be good things that can build a stronger work environment. And by building social ties we can create an environment where people are more interested in working toward common goals.
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Dr. Deming encouraged the use of the Plan-Do-Study-Act cycle to improve. Agile Management encourages a similar mindset - to test out ideas in practice and adapt quickly. A key to both strategies is to quickly iterate over possible solutions. Tesco provides an example of this strategy:
For example, customers told us that they really liked our prepared meals, made fresh daily in our purpose-built kitchen, but they wanted a wider selection to choose from. So we’ve developed and introduced a number of new products for them.
…
Of course, you could argue that this is all a sign of weakness, that we had got things wrong. But that would be to misunderstand the way we do business.
Listening, and then acting on it, is in our view the way to build long-term relationships with customers. It means our shopping trip is always improving, and staying in tune with changing needs. It’s a simple win-win. Customers get a better and better shopping trip, and we become more successful.
At the time Tesco paused the expansion I mentioned it seemed to me they should have allowed more time for PDSA.
To me, it is enormously important to design management systems that support and encourage continual improvement. That is much more important than superior results today. Results today are also, important, but a choice between an inflexible system that produce good results today and a flexible system with results not quite as good is not a close choice. Good management improvement requires continual improvement and therefore systems must be designed to support and encourage continual improvement.
Related: Experiment Quickly and Often - I own Tesco stock - management improvement tips - Tesco: Lean Provision
The bad idea behind our failed health-care system by Malcolm Gladwell
This is another article with an interesting take on the problems with the broken health care system in the USA. I don’t totally agree with the conclusion. I think the failure of the system and refusal to make substantial change have multiple causes including: smart lobbyists paying politicians lots of money to support their interest in keeping the current system, people being fearful about change, false perceptions about the system performance (thankfully an understanding of the poor performance is becoming more widespread recently), that the system works least poorly for the wealthy who have more influence than those without insurance, that the benefits of spending huge amounts today are going to specific companies and people and thus are available for buying political support (not just paying politicians but also funding marketing campaigns, experts to provide journalists the position of those in favor of the existing system…) while the benefits of changing are much more distributed. Luckily companies are increasingly - decades after Deming noted this health care costs are a huge problem for companies in the USA - focusing on the need for improving what is often one of the largest expenses for companies. The issue many fail to understand is how much the excessive costs of health care in the USA harm the ability of companies in the USA to compete - many even fail to appreciate the human cost of tens of millions of people without health insurance.
Related: Drug Prices in the USA - Measuring the Health of Nations - Overview of 5 Nations Health Care Systems - Fixing Health Care - Improving the Health Care System
‘New’ management truths sometimes started as heresies by Cecil Johnson
One of the management heresies focused upon by Kleiner that has morphed into accepted management wisdom of the highest order is the Toyota Production System, which embraces much of the thinking of heretical quality advocate W. Edwards Deming. That system, Kleiner reminds the reader, entrusts teams at each station in the assembly process to control their local operations. Performance is not evaluated on a predetermined numeral basis.
I agree with this idea except the implication that these ideas are accepted now. To the extent they are excepted it is only a surface understanding of a couple of tools and concepts. The true power of the new ideas are still adopted in a very small number of organizations. Thankfully small initial steps are being made but there is much more to be done, before we can think of these ideas as accepted.
Which of Dr. Deming’s seven deadly diseases of western management have been effectively addressed in several decades? My opinion? Zero. Granted 2 are probably closer to economic failures (political issues that management could have spent time trying to fix but not really in the control of a single company): excessive medical costs and excessive legal damage awards.
Excessive legal damage awards was the one disease most business school graduates would have agreed was a disease decades ago, and they still do. They have spent a great deal of effort to reform the legal system, but have not been effective. Many now agree the health care system is broken. But I would say less than 50% understand this, even decades later, even after the situation has deteriorated much further. And certainly little effective effort at improving the health care system has been made. At least in the last 5 years some real efforts are being made by senior executives as some companies.
And I strongly believe Dr. Deming would see the current unjustified taking of companies resources by CEOs for their own use, in ludicrous pay packages, as a new disease. If these “new” (the system of management ideas are at least 30 years old, as a system, and it has been 60 years since Dr. Deming present them in Japan after World War II) management ideas were common, such horrible behavior as we continue to see would not be tolerated.
Related: Deming Companies - Toyota Execution Not Close to Being Copied - Management Advice Failures - Purpose of an Organization - New Rules for Management? No!
Understanding Why Good Workers Quit
“Ask them directly: What can we do to keep you?,” urges Kaye. And don’t be shy or dishonest. If the employee asks for things you cannot deliver, be direct in acknowledging it but also indicate what you can do. Know, too, that just by talking to employees in this way you are scoring points because it’s something that just does not happen in most companies.
More concretely, Karen Fink, vice president of human resources for Edmunds.com, said that the glue her company uses to keep top IT workers is as simple as interesting work. “Technical workers tend to remain with an organization where they have the opportunity to contribute to interesting projects that stretch their skill sets and where they have the opportunity to be educated on the latest technologies.”
Good advice. I like direct, simple, questions. What can we do to keep you? What do you enjoy about your job? What do you dislike? What can I do to increase your joy in work? What one thing would you most like to see changed? What do you want to see continue? Would you like help in some aspect of your career development? What can I do better? Am I providing too much oversight, not enough?
Give honest straight forward answers to questions. If someone wants to move ahead and needs to work harder to advance their career tell them that. If they need to be more cooperative, develop certain skills… tell them. The idea is not just to make the person happy in that meeting. If they need to work on certain things to get where they want then help them do that. Give your best advice and say what they can do to improve.
Related: People are Our Most Important Asset - What 1 Thing Can We Improve? - IT Talent Shortage, or Management Failure? - Silicon Valley Style Hiring - How to Improve - Respect for People, Understanding Psychology - The Joy of Work
I have previously written about the ethically challenged companies that claim they are not American to avoid paying the taxes that they owe. For some reason the executives, often seem to stay in the USA though? It is sad that such behavior is tolerated.
10 Big Businesses That Have Moved Their Headquarters Abroad to Pay Less U.S. Taxes
Yes the same company taking billions in Pentagon no-bid contracts (Company Official Defends No-Bid Army Contract - Halliburton Contract Critic Loses Her Job - Halliburton’s Fleecing Ends — Or Does It?).
And that isn’t all - read this on how they don’t pay social security or unemployment… taxes since they are not an American company when they hire American’s to work for the US government in Iraq. Top Iraq contractor skirts US taxes offshore - “Kellogg Brown & Root, the nation’s top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.”
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At the core of the company’s success is the Toyota Production System, which took shape in the years after the Second World War, when Japan was literally rebuilding itself, and capital and equipment were hard to come by. A Toyota engineer named Taiichi Ohno turned necessity into virtue, coming up with a system to get as much as possible out of every part, every machine, and every worker. The principles were simple, even obvious - do away with waste, have parts arrive precisely when workers need them, fix problems as soon as they arise. And they weren’t even entirely new - Ohno himself cited Henry Ford and American supermarkets as inspirations. But what Toyota has done, better than any other manufacturing company, is turn principle into practice. In some cases, it has done so with inventions, like the andon cord, which any worker can pull to stop the assembly line if he notices a problem, or kanban, a card system that allows workers to signal when new parts are needed.
Very true, except one thing. Toyota’s innovation is not limited to process and execution. Toyota’s long term vision results in very dramatic innovation (that granted is not getting the press today - check back in 20 years, I think you will be reading about it then). For some examples see: Toyota’s Partner Robot, Toyota as Homebuilder, Toyota Engineers a New Plant: the Living Kind and The Birth of Prius.
A company truly driven by a focus on continual improvement, respect for all employees and reasonable executive compensation might be a company serious about adopting Deming and Toyota management principles. It is hard for me to imagine such a situation that doesn’t truly seek, as the primary aim of the organization, to benefit many stakeholders (workers, owners, suppliers, customers…) not just executives (or just executives, board and owners…).
Related: Toyota Management Develops the New Camry - Better and Different - Deming and Toyota - Toyota Keeps Improving - More Positive Press for Toyota Management - Good Execution is Important
This is the 1,000th post to the Curious Cat Management Improvement Blog. Here are some highlights:
Information Technology: Toyota IT Overview - “customizing the code, to its business processes, and not the other way around.”
In 2005 I posted about some of the problems with drug pricing. It is nice to find at least a couple of people at MIT that want to have MIT focus research on the public good instead of private profit. As I have mentioned too many universities now act like they are for-profit drug or research companies. That is wrong. Drug companies can do so, institutions with purported higher purposes should not be driven to place advancing science below profiting the institution.
The DDC also would serve as a mechanism for prioritizing drugs for development, noted Finkelstein. “It is a two-level program in which scientists and other experts would recommend to decision-makers which kinds of drugs to fund the most. This would insulate development decisions from the political winds,” he said.
I see their idea as one worth trying. Lets see how it works. Their book: Reasonable Rx - Solving the Drug Price Crisis by Stan Finkelstein and Peter Temin
Related: USA Spent $2.1 Trillion on Health Care in 2006 - Measuring the Health of Nations - Antibiotics Too Often Prescribed for Sinus Woes - $600 Million for Basic Biomedical Research - articles on improving the health care system
In Global Market, Iowa Manufacturers Fight for Survival:
The conventional wisdom was that the rest of the world would not be able to compete with the United States for high wage, high value jobs. It turns out the rest of the world is much more able to compete for that work than was expected.
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