False Economy?
or False Impressions?
Recently corporations have resorted to an interesting form of economizing, according to The Wall Street Journal: cutting jobs in the “C Suite.” Between January 2008 and June 2009, 40 major companies eliminated the COO or president position. (See “No. 2 Jobs Dwindle Amid Cost Cutting.”)
This may serve to stem criticism of excessive salaries. If CEOs work twice as hard, filling two jobs, they can be seen as deserving their large compensation packages – perhaps, even, deserving a raise. The firm that compiled the figures explains the trend as a desire for CEOs to get closer to the action, be more hands on, but that sounds more like a cover, distracting attention from the fact that the new arrangements can be a clever way cut costs while actually increasing the pay of chief executives.
In the same issue, the Journal notes that salaries for CEOs are down: “Including the value of stock, stock options and other long-term incentives, total direct compensation for the CEOs dropped 3.4% to a median of $7.56 million. The decline was the first in seven years and only the second drop since the Journal began tracking CEO pay in 1989.” (See. “CEO Pay Sinks Along With Profits.”) But the decline is hardly commensurate with the impact of the recession on the economy, and hardly enough to help the public believe that the hardship is being equitably distributed.
The Journal went on to quote Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware: “We are at a historic turning point in CEO compensation.” But then it adds: “Others are less sure. For some CEOs, executive perks flourished, despite searing criticism.”
Taking on two jobs may look like a good way to trim expenses, but it also can compromise good management as well as good succession planning. According to the Journal, Alan Barry, who retired as COO of Masco Corp. in November 2007, cautions that “there have to be at least two people” at the top of the company, one supervising operations and the other strategy. “You just can’t have one person that’s got all of that responsibility,” he says. “There aren’t enough hours in the day.”
So is it an attempt to deceive the public or are the CEOs deceiving themselves? Frankly, I’d rather think they are engaged in an aggressive PR campaign to deceive the public. We can hardly afford poor management as we are trying to recover and rebuild the enterprises that create jobs.