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Excessive CEO Pay

Posted on September 28, 2006 by John Hunter

Overpaid CEOs and Underpaid Managers: Fairness and Executive Compensation by James B. Wade, Charles A. O’Reilly, III and Timothy G. Pollock:

We also find evidence suggesting that CEOs serve as a key referent for employees in determining whether their own situation is “fair,” and this influences their reactions to their own compensation. More specifically, we find that when lower-level managers are underpaid relative to the CEO, that is, underpaid more than the CEO or overpaid less, they are more likely to leave the organization.

Essentially if the CEO is extremely overpaid, even if other executives and managers are overpaid (compared to those outside the company) the others feel they are not being treated fairly and turnover increases. Their data is from the 1980’s and they argue (sensibly to me) that the effects may be larger now. We have all seen CEO pay become much more excessive in the last few decades. That fact, convinced Drucker that the issue of unfair CEO pay demanded very strong denunciation from him over the last decade of his life.

In a reflection of Toyota’s team-oriented approach, its executive pay is paltry by U.S. standards. Analyst Ron Tadross at Banc of America Securities estimates the total annual compensation of Toyota’s CEO at under $1 million – about as much as a vice president at GM or Ford Motor Co. makes in a good year.

CEO’s that take such unethical large pay today are the robber barons of today and will deserve the judgement of history for the actions they take (I would imagine they are perfectly happy to take the money now and worry about opinions later). And those that approve such pay also deserve sharp criticism.

Posted in Deming, Management, Psychology, Respect, Systems thinking | Tagged deadly diseases, leadership, Management, organization as a system, overpaid executives, respect for people | Comments Off

Health Insurance Premiums Soar Again

Posted on September 26, 2006 by John Hunter

Health insurance premiums continue to soar (Lame Mercury news removed the page so I removed the link):

For the seventh straight year, premiums for employer-based health insurance rose more than twice as fast as overall inflation and wages, an annual survey of employers shows.

This health care crisis continues to dramatically harm the economy yet attempts to deal with the issue remain much too small. Good news is available, for example: Lean Health Care Works and Going Lean in Health Care. Read the full report [the broken link was removed]. Also see more posts on health care management improvement.

Posted in Economics, Health care | 1 Comment

Chaos Management (by design) at Google

Posted on September 25, 2006 by John Hunter

Chaos by design by Adam Lashinsky:

Sandberg recently committed an error that cost Google several million dollars — “Bad decision, moved too quickly, no controls in place, wasted some money,” is all she’ll say about it — and when she realized the magnitude of her mistake, she walked across the street to inform Larry Page, Google’s co-founder and unofficial thought leader. “God, I feel really bad about this,” Sandberg told Page, who accepted her apology. But as she turned to leave, Page said something that surprised her. “I’m so glad you made this mistake,” he said. “Because I want to run a company where we are moving too quickly and doing too much, not being too cautious and doing too little. If we don’t have any of these mistakes, we’re just not taking enough risk.”

A bit unconventional: and not right for every business. But for Google this makes sense to me, and it has been working well for them. Google hired Shona Brown, as senior vice president for business operations in 2003. In 1998 she authored – Competing on the Edge: Strategy as Structured Chaos.

Posted in Creativity, Google, Innovation, Management | 4 Comments

Lean Outsourcing

Posted on September 25, 2006 by John Hunter

Unfortunately many people think of outsourcing when they think of lean, because they don’t understand lean manufacturing. Lean Manufacturing and Outsourcing by Eric O. Olsen and Mark Zetter (via Lean Outsourcing) looks at outsourcing with an understanding of lean manufacturing.

Posted in Lean thinking, Management | Comments Off

South Carolina Photos

Posted on September 24, 2006 by John Hunter

South Carolina photos from my visit last September to Huntington Beach State Park (photo above), Charleston and Cypress Gardens. More travel photos – travel photo posts.

Posted in curiouscat.com, Travel photos | Tagged photos, Travel photos | Comments Off

Manufacturing Jobs

Posted on September 23, 2006 by John Hunter

The article, Manufacturing Lost 3.4 Million Jobs Since 1998 [the broken link was removed], indicates “The increased output should lead to job recovery.” I doubt it. While it is true there is a correlation between output and jobs by far the most significant trend is more manufacturing output and fewer manufacturing jobs everywhere in the world. Like so many articles talking about manufacturing job losses in the USA this one could leave many readers thinking that the USA needs to gain back jobs lost to other countries (while in fact the USA has lost a lower percentage of manufacturing jobs than most all countries – including China – based on the latest data I have seen).

Focusing on manufacturing output and jobs and their importance to the economy makes sense. However, I think people need to update the model they use to set expectations of manufacturing job levels. And given a world in which no countries seem able to do gain manufacturing jobs, it seems more reasonable to expect a continuation of decreased jobs and increased output until that worldwide trend changes. If you want to focus on manufacturing jobs in the USA I think the realistic goals are decreasing the reduction in jobs (by supporting what is still by far the world’s dominant manufacturing economy).
Continue reading →

Posted in Economics, Manufacturing | Tagged economic data, jobs, Manufacturing | 4 Comments

Systemic Thinking

Posted on September 23, 2006 by John Hunter

Systemic Thinking by Gary Bartlett provides a nice introduction to systemic thinking compared to analysis. Analysis is very useful however, the strong tendency to focus on only breaking apart systems to analyze components does result in missing insight into improvement opportunities (that can be gained by looking at the system as a whole).

Conventional thinking techniques are fundamentally analytical. Systemic thinking is different – it combines analytical thinking with synthetical thinking.
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That tool is synthesis – seeing how things work together. Synthesis is more than putting things back together again after you’ve taken them apart: It’s understanding how things work together.

Analytical thinking enables us to understand the parts of the situation. Synthetical thinking enables us to understand how they work together.

Posted in Creativity, Innovation, Systems thinking | Tagged Creativity, system thinking | 2 Comments

Incentive Programs are Ineffective

Posted on September 19, 2006 by John Hunter

Reward and Incentive Programs are Ineffective — Even Harmful by Peter Scholtes

The greatest management conceit is that we can “motivate” people. We can’t. Motivation is there, inside people. Our people were motivated when we hired them and everyday, when they come to work, they arrive with the intention of doing a good job. Managers cannot motivate. They can, however, de-motivate. Herzberg established this over 30 years ago (Herzberg, Frederick “One More Time: How Do You Motivate Employees?” Harvard Business Review, September-October 1987, pp. 109-120. This is a reprint with commentary, of an earlier classic paper.)

The greatest managerial cynicism is that workers are withholding a certain amount of effort that must be bribed from them by means of various incentives, rewards, contests, or merit pay programs.

Posted in Deming, Management, Psychology, Respect | Tagged Management, organization as a system, Performance Appraisal, Peter Scholtes, respect for people | 1 Comment

Management Improvement History and Health Care

Posted on September 17, 2006 by John Hunter

Squeezing the fat from health care [the broken link was removed] by Hanah Cho is another article on lean healthcare. This one provides a better view of the overall picture – especially compared to all those claiming to be one of the first lean thinking effort in healthcare. A good sign was that the author referenced, Going Lean in Health Care, a great report by IHI (James Womack and others).

It is nice to see a recognition of management history (so often missing):

Workers may remember theories such as Total Quality Management, Six Sigma, re-engineering and other business techniques that use flow charts, problem solving and role playing to help make their organizations more effective.
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But some health care management experts say that some hospitals – like corporations – have gone through numerous quality improvement methods, only to abandon them for the latest management program.

I think it is wise to think about what improvement methods were tried in the past and try to understand why they failed in order to improve the chances of success today. I think the many of the things which tripped up TQM, Six Sigma, re-engineering… efforts in the past are waiting to do the same to those efforts today, including lean thinking efforts.

Posted in Health care, Management, Six sigma | Tagged Health care, Lean thinking | Comments Off

Lean Thinking at United

Posted on September 17, 2006 by John Hunter

Mark Graban gives a nice review of some material on web site of a United labor union in: An Encouraging Lean Example at United Airlines. From the union web site, he quotes:

“Once fully implemented, the 5S+1 process can increase morale, create positive impressions on customers, and increase efficiency and organization. Not only will team members feel better about where they work, the effect on continuous improvement can lead to less waste, better quality and faster lead times.”

It is much easier to talk about these things than to actually do them. Still, that talk is the right talk. A really good sign will be when the labor union uses lean thinking for its own management. The same goes for the “executive suite.” This isn’t just stuff for the other people to do.

Posted in Lean thinking, Management, Psychology | Comments Off