Is Any CIO Worth the Livelihoods of 250 Families?

Don Tennant

A blog post last week, May 2010 Be the Year That Charles Wang Is Brought to Justice, touched a nerve in a reader who commented on the performance bonus of over $600 million that software vendor CA is taking legal action to recoup from Wang. As the reader pointed out, a bonus like that would be obscene even if Wang, CA's co-founder and former CEO, wasn't so widely seen as the mastermind behind the financial accounting fraud that almost destroyed the company.

 

The reader put that outrageous sum in a context that warrants highlighting here:

"Just to put that into perspective, $600 million is enough to pay 300 engineers a $100,000 salary for 20 years. Or 6,000 engineers $100,000 for one year. Imagine what CA could do with 300 high quality engineers for 20 years! Certainly more than this one CEO. Pretend for a moment that he isn't a criminal (which requires quite an imagination). If he were a saint, that type of bonus is stealing from the investors who no doubt had no say in the matter."

Indeed, the inexcusable excesses that are widespread in executive compensation at publicly held companies are screaming for a lot more urgent attention than they're getting. For one thing, the excessiveness is hardly limited to the CEO suite. It's happening far too frequently at the CIO level as well.

 

A striking example lies in the rest of a story that I touched on in another blog post last week, Age Discrimination in IT: At Least the Pain Is Shared. I mentioned that my wife, a 56-year-old HR executive who has been unemployed for almost a year, is wondering whether her age might be a factor in the difficulty she's having in finding a job. What I didn't mention is that the reason she's unemployed is that she was among the 7,000 employees at The Home Depot who were laid off last January. Nor did I mention that not long before that, Bob DeRodes had left his job as CIO at The Home Depot. In his case, the departure was a voluntary one-he left for a job as chief technology officer at First Data. The deal he got at First Data must have been an awfully attractive one, because the compensation package he left at The Home Depot was in the neighborhood of $5 million.

 

I don't know how many IT workers were among the 7,000 on the layoff list my wife found herself on, but I do wonder if DeRodes was able to look any of them in the eye. What's most troubling is that if he was so inclined, he'd be able to point to cases that are far more outrageous than his.

 


Take Hewlett-Packard CIO Randy Mott, whose total compensation for 2008 was $28,293,134. Now, Mott is a really good guy, but when you consider that he could have made, say, $3 million and change, and laid off 250 fewer breadwinners each earning $100,000, something's wrong with our sense of balance.

 

The aforementioned reader suggested that the answer lies in shareholder approval of all executive compensation packages. That's an interesting idea, and one I broached in a mid-2008 interview with Anne Mulcahy, who at the time was CEO of Xerox. Mulcahy was also No. 13 on Fortune's list of highest-paid women, with a compensation package of roughly $13.5 million. This is what Mulcahy had to say on the subject:

"I'm not necessarily sure than an advisory vote on pay is the most productive use of our shareholder voices. I do believe that is the job of a compensation committee [of the board of directors], and that shareholders now have the ability, with majority voting, to say yea' or nay' to the people that they put on boards, and that that's appropriate. Executive pay is a complicated set of decisions and discussions, and suggesting we're going to solve it with advisory votes from shareholders -- I don't think that's the way it should be addressed."

What do you think? Should shareholders have a voice in determining executive compensation packages? And is any executive worth the livelihoods of hundreds of families?



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Jan 5, 2010 12:22 PM srichey srichey  says:

Oh come on Don! Doesn't coming up with a "valid" outsourcing strategy that maximizes shareholder value (praise be to Jesus!) make someone worth multi-millions?  Seriously, I wonder how long companies are going to keep getting away with treating people like disposable economic units.  Howard Zinn was right, the middle class is the "guard" that the upper class needs for protection agains the lower classes.  What happens when the middle class is gone in two more generations?  I think there is going to be a terrible reckoning.

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Jan 6, 2010 6:33 AM Leo G. Leo G.  says:

A CEOs compensation covers not only what they're worth but why they earn for the company. If this person's leadership and guidance earns the company billions - then their own compensation totalling say - 2% of what they brought to the company is a far different perspective.

Take into account that this people also have most likely been married to their company for years - giving up their personal lives, their families, and sometimes their health - to make their company succeed, then they're being compensated aptly for their work (their soul).

I am no proponent for these ridiculous bonuses and compensation packages - but I understand.  It's the cost of their soul. 

I worked with one dedicated high level EVP who got up at 4am every morning to review the news, came into work at 8am, left work at 7pm ad continued to fire off emails until 9pm. That's the way she worked. The company benefitted greatly from her work.  Her family is a footnote in her life, how much is that worth?

I think it's pretty idiotic to measure an executive salary by middle management or street terms; they're being measured by what their company earns not by the rules an average paycheck worker is gauged.  

@srichey, you're completely and utterly mistaken. If I earn 3.6 billion for the company, I'd like 16% of that bottom line. That's Wang's number.  He got 1% over the standard 15% - probably because he CREATED the company. Do the math. What was your bonus? 5%? You would've earned 150 million? Feel better?

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Jan 7, 2010 4:59 AM Fishwood Fishwood  says: in response to Leo G.

"I worked with one dedicated high level EVP who got up at 4am every morning to review the news, came into work at 8am, left work at 7pm ad continued to fire off emails until 9pm. That's the way she worked. The company benefitted greatly from her work.  Her family is a footnote in her life, how much is that worth? "

A lot of us would do it for a lot less than what these executives are earning.  There's more to it than that.

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Jan 9, 2010 6:49 AM Common Sense Common Sense  says:

I have been making the same argument for years.  The United States has got to stop rewarding people for figuring out how to fire, lay off and underpay more people.  This is a sham economy.

So what some CEO gets up at 4am!  Why does the worker that gets up at 4am and works til 10pm get a pay cut while the CIO, CEO and some other suit clown get millions? 

Boycott all businesses where the suit clowns make more than 100% of the lowest paid employee.  Demand that our government stops doing business with any company whose suit clowns make more than 100% of the lowest paid employee (or contracted worker bee).

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Jan 12, 2010 6:30 AM R. Lawson R. Lawson  says:

Thanks for picking up my comment.  Glad it touched more than just my nerves.

As to what Anne Mulcahy had to say:

"'I'm not necessarily sure than an advisory vote on pay is the most productive use of our shareholder voices. ...  shareholders now have the ability, with majority voting, to say yea' or nay' to the people that they put on boards"

I find that comment condescending.  As if to say the shareholders simply aren't intelligent enough to approve executive compensation.  It's just too complicated for us little people (who happen to be funding your company).

It's this very attitude - which I believe is pervasive - that results in what we see today.  I think it needs to be squashed, and fast.  This is a perfect opportunity for a shareholder rights bill. 

As far as my involvement as a (minority) shareholder on approving board members, let's review how that process goes.  Every now and then we get letters in the mail and on it is a list of every board member up for approval.  We don't have a choice - as in which board member do we want the most.  We have an up or down vote on all.  And we have no idea who these people are or what they bring to the company.  That information isn't provided.

The system is a sham.  If we held elections this way, we could rename the country Venezuela.

Please ask Anne Mulcahy to send you the last letter they sent out to shareholders to approve board members.  I doubt there is anything sensitive about this document.  If people see what this process normally looks like, I think it will be very clear just how little say we shareholders have.  Maybe I've not seen a good example, so I would like to see what process Xerox has.

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