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Right Compensation

 

Pale Rider, he's such a smoothie. He coaxed Bella out of hiding and she uttered her opinion about CEO pay. She rightly says:

All this would be well and good if big corporations actually treated/paid their employees with the same considerations as their executives with the excess their tax breaks save them.
Executive pay... that's an interesting issue. Because she brings up such an interesting issue, I want to talk about it.

My take on it is kind of simple, and I alluded to it back in January 2007, when I wrote of the sacking of Home Depot's inept CEO, Bob Nardelli:

[Bob] didn't know the customers, he didn't trust the store managers, and he sqaushed the "can-do" entrepreneurial attitude of the employees. Where was the "up" in hiring the man?

Aside from those who took the risk in starting a successful company in the first place, no one is worth [Bob's] severance package of $220 million. A founder might have grown their company to earn that much, but then that's just the reward on their investment, and not a severance package.

Personally, I think any company board that decides to reward bad management with even the first $1 bill itches to be jailed for defrauding investors. Whenever I hear of golden executive parachutes after a poor stint at the helm of a company, I cringe. That's not capitalism; it's cronyism or it's bribery. Either way, it's theft and it's wrong, in my opinion.

Executives, though, are not in the same class as the business owner.

I'm gonna quote something I wrote in January 2003, in the midst of working hard to make a success of the company I previously started. (It didn't fly, but came close.) I was about 1 year into blogging at that time on a different web site than this one...

Americans began as a largely self-employed lot. In Lincoln's day, it was looked down upon to work for someone else. Self-reliance was the mode. Industrialization brought an end to that. The move toward factories had people moving from farm to city and you needed big bucks to start your own company. But that's not true today.

Today, we live in a services-experiences economy. Can you type? Have a typing service. Are you good at socializing? Have a dating service or a head-hunting firm. Can you work with databases? Perhaps you can be a consultant. Each of these requires little investment. Not everyone is wired to do this, but it is possible if you want to try it.

As I began working for myself, I noticed that my attitude about corporate structure changed - a lot. I gained a respect for owners that I didn't have before. I've always been a rebellious, stick-in-your-eye kind of employee, always thinking of something different and always championing the little guy. But now that I've transitioned to the other side of that fence, I've come to see how hard it is to run a successful business. Many of my former habits have had to die. I now see that owners and investors deserve what they have because they took - and take - the risk and they earn their reward every day.

I've learned that the rich and the risk-takers in America are the ones who start businesses. Nobody else does. These businesses are the ones that create jobs, which allow people to then afford their homes and cars and clothes for their kids. These people, heroes in my book, are the ones who make it all possible in America. Through them, we have a military that defends us. Through them, we have the money to be given to those in need. We have roads and bridges and great many things. If the rich and the risk-takers didn't start businesses in the first place, there would have been no money for any of this because there would be no jobs from which taxes are collected. That makes them heroes.

But there is an active culture war underway to fight against these people. That war seeks to dilute from them the very reward that they earn through the risk that they take. If you've know anything about my own personal story, you know that I've been very poor - even homeless - and that I've worked my way out of it. I inherited nothing. Those people who do anything that reduces the willingness of the rich and the risk-takers to create jobs for people are either ignorant to the hurt they cause to the livelihood of the people who would have otherwise had jobs, or they are strident socialists, and they need to be educated and fought.

You can read from this bit the early thoughts that fed into my recent post on wealth redistribution. For these reasons, anyone who fights against any business trying to succeed gets my blood pressure up.

For what it's worth, Bob Nardelli was one of those, in my view, who fought against business. He's just as malicious as those stunted souls in organizations like ACORN and he's twice as guilty.

A business often succeeds because the founder/owner discovered a secret sauce that got customers excited to be a part of the business. It could be the products, the ambience, the customer service - whatever - the entrepreneur figured it out. The thing grew like mad...

Later, enter some slickster, Powerpoint slides and management theories brimming at the ready, and he comes in and changes the business' secret sauce because he thinks he knows better. And he screws it up. And then magically somehow he excuses his failure away in a flurry of rational spreadsheets and market reports. The board of directors - because they know him and golf with him and saw how much he poured himself into the black hole of it all - they give him an outrageous severance package.

That's when I stop championing the company and the executive - when compensation no longer has any base in merit.

On the other hand, starting a company is the hardest exercise I know. Growing a successful company into even greater success is no easy task either, and I have no problem with outrageous rewards, should the profits merit that.

Workers generally care a great deal for the company and want to help it to succeed. But there's a difference. The workers take no risk like the business owner does.

A friend of mine recently took out a $250,000 loan to start her business. That's risk. She feels the weight of that risk every day she goes to work. Her employees don't even think about it. They show up, do the best they can, and then go home.

Or take me, for instance. This is my eighth company. I make no money while I develop this new company. I'm up until ridiculous times late at night. I'm hundreds of hours into this one, with maybe 100 more to go before it's open for business, plus the time after that in code tweaking and inevitable bug-fixing and I have no guarantee of reward. It may fall flat on its ass, as a few others have done that I started.

That's risk - working for hundreds of hours for free.

I should also count the hours spent in my previous startups and count the sometimes painful lessons I learned from those.

For the entrepreneur, it's an investment, with no promise of return. This lifestyle is not for everyone. I'm okay with that. I don't expect others to do this. But you know what? If a company succeeds and does ridiculously well, no one has the right to tell the owner what fair compensation should be in comparison to employees.

That's why I started this enterprise: I don't want a ceiling. I don't want people telling me the limit to what I can earn. I want to declare the height of my own room.

I want to decide my own fringe benefits. Like, I want to wear shorts to work every day and play Tears for Fears loudly on Friday afternoons while I sip a Negro Modelo. I want to park my bike, dripping wet with melting snow, in the front of the office. I want to hang my artwork on the walls. Sound silly? Perhaps. But that's the right of the entrepreneur, the reward for creating something out of nothing. It's thrilling and scary. And very different from being hired by a company. The trade-off is that the employee gets the security of a steady paycheck while the company remains solvent.

Executives are just employees with steady paychecks. More savvy and skilled, perhaps, but just employees. Unless they know how to tweak the secret sauce into making oodles more money, Bella's right - their compensation deserves the same consideration as other employees.

The thing is that in America, no matter how outrageous the package is, it's up to the owners how to compensate executives. Such is the freedom we enjoy here in this country - the freedom to also blow wads of cash on people who sometimes don't deserve it.

 


by Brett Rogers, 12/7/2007 2:22:28 AM
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Comments

Smoothie. :) That reminds me of your "Martini Blogging" post about Mitt. "He's smoother than a smoothie smoothed over with fine-grit sandpaper, then sent out for further smoothing to Kruger Industrial Smoothing."

My God that was funny.

 

 

Posted by Pale Rider, 12/7/2007 12:23:01 PM


I am responding to your blog, kudo's on a job well done! While it looks interesting I believe I have something you will be eager to know about as an additional stream of income. The best thing is that it’s completely FREE. It’s called [marketing claptrap snipped by Brett because spamming on my web site is simply not allowed, Patrick]

 

 

Posted by Patrick Simpson, 12/7/2007 12:23:30 PM


Spammers are evil!!!

 

 

Posted by Pale Rider, 12/7/2007 2:57:50 PM


I was not HIDING! Those who know me know I'm not a hider! :-) I merely evaluated my sphere of influence and realised that almost none of the Beatcanvas bretheren are within it. I don't have time for the pain. Now post about something fun (call politics what you will...I don't consider them fun), and I'll play! Mmmm-wah!

Good Lord. PR a 'smoothie.' There'll be no livin' with him now! :-)

 

 

Posted by Bella, 12/7/2007 5:47:56 PM



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