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Tilting at Ludicrous CEO Pay

Posted on June 11, 2007 by John Hunter

I continue to tilt at the robber barron CEO pay packages. Hopefully, at some point, the people approving these obscene pay packages can be shamed into stopping or replaced by people with some sense of decency. I was taught in the days of robber barrons the business world was seen as an amoral place (morality did not belong in this area of human endeavor) but that over time society decided that in fact morality did apply there. It is hard to reconcile that with the behavior of CEOs and board approving ludicrous pay packages. See previous post on the purpose of organizations. Half of S&P 500 CEOs Topped $8.3 Million

“It’s a complex subject and that’s really the question…Why is it so complex?” said Dominic Jones, Clarity’s president.

“Why is it that a CEO gets compensated in such a discombobulating fashion when the average worker gets a paycheck and can tell immediately what it’s about? … If you’re an investor and you get your (proxy) statement and it just goes on for pages and pages of the different methods used to pay the CEO, at some point you have to ask yourself why. ‘Why don’t I get all this?'”

Very good question. I would say they are intentionally trying and confuse the issue. Even as they spout defenses for such unjustifiably pay packages they know the pay is not defensible and so try to confuse the issue with byzantine explanations. Lets look at the CEO pay versus total earnings for several companies:

Company	CEO	Pay	Earnings	CEO %
Yahoo!	Terry Semel	$71,660,216	$751,000,000	9.5%
XTO Energy	Bob Simpson	$59,489,924	$1,860,000,000	3.2%
Goldman Sachs	Lloyd Blankfein	$54,300,000	$9,537,000,000	.6%
Occidental Petroleum	Ray Irani	$52,822,584	$4,182,000,000	1.4%
Merrill Lynch	E. Stanley O’Neal	$46,375,347	$7,499,000,000	.6%
Danaher	H. Lawrence Culp, Jr.	$46,215,671	$1,122,000,000	4.1%
Countrywide Financial	Angelo Mozilo	$42,994,306	$2,674,000,000	1.6%
Morgan Stanley	John Mack	$41,400,000	$7,472,000,000	.6%
Ford	Alan Mulally	$39,128,100	$1,540,000	2540.7%
Apollo Group	Todd Nelson	$32,626,442	$415,000,000	7.9%
AT&T	Edward Whitacre	$31,765,761	$7,356,000,000	4.3%

Data via: Best-paid CEOS (only those with fiscal years ending after December 15th – more pay data) – for 2006 according to an Associated Press analysis that covered nearly 400 of the nation’s 500 biggest public companies and Google Finance. I realize this chart could be improved by spending more time (especially looking out over several years for both pay and earnings…) but this is what I could do relatively quickly.
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Posted in Deming, Economics, Management, Performance Appraisal, Psychology, Respect, Systems thinking | Tagged curiouscat, Deming, executive pay, management, overpaid executives, quote, respect for people | 10 Comments

Awesome CatCam

Posted on June 10, 2007 by John Hunter

CatCam - photo of the famous cat photographer CatCam - cat photographer on the run CatCam - cat photographer get picture of another cat

I posted this to our science and engineering blog last week: Awesome Cat Cam. It doesn’t really have anything to do with management: I suppose I could make a case for creativity… but basically it is just really cool (it also illustrates some good product design and testing points). CatCam by Juergen Perthold – this great project involved taking a digital camera and some additional equipment to create a camera that his cat wore around his neck which took pictures every 3 minutes. The pictures are great. The cat got photos of several other cats and seemed to like spending time under cars. You can now order your own CatCam.

Sometimes I have some challenging ideas, or crazy like some other people would say. This time I thought about our cat who is the whole day out, returning sometimes hungry sometimes not, sometimes with traces of fights, sometimes he stay also the night out. When he finally returns, I wonder where he was and what he did during his day. This brought me to the idea to equip the cat with a camera. The plan was to put a little camera around his neck which takes every few minutes a picture. After he is returning, the camera would show his day.
…
For the second try I used the plastic package of a child toy (Kinderueberraschung), put a stone in it for loading it with some weight and attached it again to the cat collar. This time the part returned – dirty and scratched outside, water inside. What the hell is the cat doing !? This raised the requirements for the camera protective housing a lot
…
Big moment no. 1: attach the collar with the camera to the cat. The reaction was not very happy but finally accepted. Reality check passed 🙂

Posted in Creativity, curiouscat.com, Fun

Continuous, Constructive Feedback

Posted on June 7, 2007 by John Hunter

Employee performance: Continuous, constructive feedback yields results [the broken link was removed]:

Be specific. If you simply say “Good job, Frank,” Frank won’t know exactly what he did to get that atta boy. Therefore, he can’t consciously work to repeat that behavior. Instead, say something like “Frank, that new procedure you developed for handling service calls has really improved customer satisfaction. Thanks for coming up with it.”

Include coaching. Annual reviews often are used as the only performance communication tool. They give the associate a “grade,” but do they have a well-crafted development section? Do they have a plan for how you are going to partner with them to help them grow? If they do, how often do you visit the plan throughout the year to make sure it’s on track?

Exactly right. As I have discussed I don’t believe in the annual performance rating (Performance Appraisals – Is Good Execution the Solution? – Performance Appraisal Problems…) so I would just skip the grade. The correct strategy, communicate and coach continually. Have defined process that are clear to everyone. Have clear expectations for what people are suppose to do and have methods to make problems visible so they can be addressed.

At your hotels, there are opportunities every day to provide constructive feedback for your associates’ success in the different aspects of their jobs. Whether it is technical (i.e. can’t get the bank to balance / the chicken cordon bleu isn’t to spec) or behavioral (i.e. time management / consistent follow-through), knowing these things along the way allows them to grow and support the big picture. Communication also builds trust between you and your team.

More good points. This stuff is not exactly rocket science but so few organizations do this well – even as obvious as it is.

Posted in Management, Performance Appraisal, Psychology, Respect | Tagged managing people, Performance Appraisal, Psychology | 4 Comments

Lean Progress at Label Printing Companies

Posted on June 6, 2007 by John Hunter

Continuous Improvement [the broken link was removed], an article from the Label and Narrow Web trade magazine (“for the narrow web segment of converting and printing”), is an article with some nice anecdotes of successfully applying lean thinking.

“The dollar ramifications are huge. We pay bills in 10 days now because we have fewer bills to pay, and now we have discounts. We made back the money we paid last year in interest on our credit line because we have so much less inventory. In 18 months we took our inventory from well over $400,000 to under $200,000, and in those 18 months the company grew 20 percent.
…
“The next area we focused on was our press benches. We got rid of everybody’s tool boxes and standardized. No other tools in the building. We went on a shopping spree at Home Depot, we moved out extra work benches, set up shadow boards, and mounted all the new tools on them. If a tool is missing at the end of a week they pay for it. We cleaned up the floors, and now the shop is really open and clean looking. The next step is to put up modular walls and install air conditioning.”

Luminer Converting has been assisted in its Lean venture by the New Jersey Manufacturing Extension Program; similar operations exist in almost all US states. “Through them we received a grant which paid for 90 percent of the consultancy fees we incurred,” Spina notes.

via: Lean Printing [the broken link was removed] – a new lean blog

Posted in Lean thinking, Management, Management Articles, Quality tools | Tagged lean manufacturing, Lean thinking, Quality tools

Bad Management Results in Layoffs

Posted on June 3, 2007 by John Hunter

In response to Is Laying People off Really Anti-Lean? [the broken link was removed]:

Let’s say you, a Lean enthusiast, are named CEO of a mid sized manufacturing company. Let’s also assume your market has turned down and the constraint is clearly the market. Let’s also assume you need to improve operating income above all else. The final assumption is the company you inherited is not even good at mass production. They just stink at everything.

If you come into this situation and realize that you can implement some basic lean and six sigma principles and only need half the workforce to meet customer demand what do you do?

Layoffs are a failure of management. If the company has not been executing a long term strategy to respect people and manage the system to continually improve, manage for the long term, working with suppliers… it might be they have created an impossibly failed organization that cannot succeed in its current form. And so yes it might be possible that layoffs are required.

It is very easy to jump to layoffs as the “answer” though. While it is possible to construct a situation in which they make sense that such a hypothetical situation it rarely is the case that an organization is committed to lean and then makes layoffs. Instead they just think the same old way and mention the word lean since they see others doing it and layoff sounds like it is lean to someone that doesn’t know the first thing about lean thinking.

I would not see, “a focus on improving operating income above all else” as a lean way of thinking. Improving that is one focus among many that are needed to achieve long term success.

Does that mean a organization doing a great job of managing in a truly lean way may not find itself in a position where layoffs are necessary? No. Failing to predict and execute may have consequences and those may include layoffs. In your example things are confused a bit by separating the responsibility of getting into the mess from what to do next. Definitely, riding out a few poor quarters would be preferable. I have absolutely no question about that.

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Posted in Deming, Lean thinking, Management, Popular, quote, Respect, Toyota Production System (TPS) | Tagged bad management, layoffs, management, respect for people | 18 Comments

Management Improvement Carnival #12

Posted on June 1, 2007 by John Hunter

Please submit your favorite management posts to the carnival.

Employee Driven Improvement at Southwest by Mark Graban – “It’s not called Lean, nor does it reference Toyota, but it sounds like Lean. It’s always nice to see management taking that approach with employees, since most of the airline industry seems to treat employees like a cost, rather than an asset (or real human beings).”
SPESA Trip Report by Kathleen Fasanella – “I keep saying over and over till I’m blue in the face that lean manufacturing is the way to go, especially if you’re a small company. This system set up will pay for itself quickly”
eBay and Toyota: Respect for People by Peter Abilla – “The eBay Values are not just rote statements and the behaviors are not just empty slogans, but they are truly practiced by the people at eBay”
Differing Perspectives On Suppliers by Kevin Meyer – “You can bash your suppliers into submission, losing more than a few of them along the way, or you can develop true long-term partnerships that benefit everyone in the supply chain.”
How fear of failure destroys success by Adrian Savage – “The constant covering up of the smallest blemishes. The wild finger-pointing as everyone tries to shift the blame for the inevitable cock-ups and messes onto someone else…. The lying, cheating, falsification of data, and hiding of problems—until they become crises that defy being hidden any longer.”

Continue reading →

Posted in Carnival, Management

Six Sigma Outdated? No.

Posted on June 1, 2007 by John Hunter

Here is another of those articles that promotes the idea that oversimplifies six sigma and then declares that mindset is outdated because innovation is needed nowadays – Six Sigma: So Yesterday? [the link Business Week broke was removed].

The discipline was developed as a systematic way to improve quality, but the reason it caught fire was its effectiveness in cutting costs and improving profitability. That makes it a powerful tool—if those are a company’s goals. But as innovation becomes the cause du jour, companies are increasingly confronting the side effects of a Six Sigma culture.

Previously I have addressed this mindset in New Rules for Management? No!, Has Six Sigma been a failure?, Managing Innovation and Fast Company Interview: Jeff Immelt:

I don’t see any reason why managers in the past shouldn’t have had the qualities he seems to be saying are needed now. And I don’t see any reason why the qualities needed now were not needed in the past. This sure seems like a bunch of words saying nothing to me: perhaps I just don’t see the wonderful cloths the emperor has on.

My guess would be that what leads to this quote is not a lack of understanding that managers need the same qualities today they needed 10 years ago but the compulsion to feed the media frenzy for some incredible new insight. It just isn’t sexy to say “we need the same leadership qualities we needed in the past.” Deming stressed the importance of these “new” qualities he states more than 50 years ago

Yes execution of six sigma often focused too much on cost reduction, optimizing short term projects (which resulted in sub-optimizing the entire system), ranking and rating employees… But innovation is not harmed by a good six sigma program – in fact a good six sigma effort a decade ago understood the importance of innovation perfectly well.

Posted in Management, Six sigma | Tagged Six sigma | 1 Comment

Focus on Long Term Success

Posted on May 29, 2007 by John Hunter

Put Investors In Their Place by Clayton M. Christensen and Scott D. Anthony:

The notion that managers must above all appease investors drives behavior that focuses exclusively on quarterly results. Thus, many management teams hesitate to invest in promising innovations that are likely to hurt near-term financial performance.
…
Perhaps it is time for companies to adjust the paradigm of management responsibility: “You are investors and speculators, not shareholders, and you temporarily find yourselves holding the securities of our company. You are responsible for maximizing the returns on your investments. Our responsibility is to maximize the long-term value of this company. We will therefore act in the interest of those whose interests coincide with our long-term prospects, namely employees, customers, the communities in which our employees live, and the minority of investors who plan to hold our securities for several years.”

Good idea – as we have discussed previously.

Posted in Deming, Innovation, Management, Systems thinking | 1 Comment

Boston Travel Photos

Posted on May 28, 2007 by John Hunter

After I presented the Deming Seminar in Boston last year a spent a few extra days in to enjoy the city. See photos from my Boston visit including: Boston Fine Arts Museum, Boston Science Museum and Boston Common.

Posted in curiouscat.com, Fun, Travel photos

Eliminating Quarterly Earnings Guidance

Posted on May 25, 2007 by John Hunter

It is good to see more people understand the bad practice of excessive short term focus on quarterly profits. It is also a bit amusing to see the Chamber of Commerce pushing an idea Deming was called unrealistic for pushing.

The right way to handle a surprise:

The U.S. Chamber of Commerce is calling for companies to halt “earnings guidance,” or coaching analysts, toward a precise target for quarterly profit. “The incentive to meet that number is an incentive to manipulate,” says Robert Pozen, head of the MFS mutual funds. The negative surprise comes in the end: Remember Enron.

Roughly a quarter of the companies in the S&P 500 have stopped giving guidance (or never started), including Berkshire Hathaway, Coca-Cola and Google. Check the investor-relations area of a company’s web site to see whether it plays what David Hirschmann of the Chamber of Commerce calls the “fool’s game” of earnings guidance.

Posted in Deming, Google, Investing, Management, Systems thinking | 1 Comment