Drucker and Peters agree on CEO compensation

Forgot to post on an article that I saw this past weekend (Investor’s Business Daily… sorry no direct link available).   It had a brief note that

…Peter Drucker once warned that CEOs who receive 25 times more compensation that the average employee’s salary undercut the teamwork demanded by successful enterprises.

… Tom Peters…, recently urged boards to clamp down on bloated CEO pay.

I’m more of a “Druckerite” than a “Peterist”, but it is interesting that both agree.  Ideologically I have difficulty with imposed caps.  However, given the bubble has just burst, it is hard to believe that the ROI claimed by highly-paid executives was anything more than bubble-driven.

4 Responses

  1. I have a theory (that would be hard to prove) that high CEO pay is caused by the lack of transparency to what is really driving business today–intangibles like IT-enabled processes, human capital and external networks.

    Financials don’t tell the story. So someone who is good at managing the intangibles ends up looking like a miracle worker. If these drivers were more explicit and better understood, there would be less need for these miracle workers…

  2. I agree… and the effect of the bubble could be devastating on an unwary intangible-reliant enterprise. The bubble would further decrease transparency about which intangibles are differentiating and which simply blew up along with everything else.

  3. Mary Adams touched on the point of transparency. Having worked in the upper levels of a fortune 500 company for the past 10 years, I can tell you that CEOs spend an inordinate amount of time with the compensation committee- or reviewing their( the CEO) potential bonuses. It used to be that to become wealthy you had to run your own business. Today it is much easier to feign running a public company and regardless of the outcome or success of the operation, the severance would far outweigh any profits normally made in a private enterprise. Who pays for all that? The shareholder…

  4. Roberta, that’s exactly right. The agency dilemna as gotten out of hand — it is crazy that corporate careers can end up as paths to real wealth (>$10-25MM net worth)…especially when you aren’t a rainmaker who could leave and “grow your own.”

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