Wednesday, November 12, 2008

CEO/worker Inequity short-circuits Circuit City

Time to do the ratio of CEO compensation to the pay of in-the-trenches sales clerks at Circuit City.

The national retailer has been so brilliantly managed by its top brass that it just declared bankruptcy.

The bankruptcy, of course, means that thousands of sales staffers soon will be on the streets while the golden parachutes unfurl for top management.

So what's that ratio?

Bloomberg.com reported earlier this year that in fiscal 2006 Circuit City’s CEO Philip Schoonover was paid $8.52 million including a salary of $975,000.

To cut costs last year, Schoonover and management fired more than 3,000 “overpaid” floor sales people who were making a whopping $11 per hour. Management replaced them with inexperienced new hires being paid $8 per.

Morale immediately tanked as did sales, but at least management didn’t do the unthinkable — cut Schoonover’s stratospheric compensation.

So what’s the ratio of Schoonover’s take to that of a floor salesperson, who we’ll figure averages $9/hour or $18,720 a year?

The management is rewarding Schoonover with 456 times as much as the average sales stiff.

To experience why workers might be embittered, Mr. Schoonover ought to try living for a year on $18,720, which is what Schoonover makes in roughly five hours.

I have maintained that any executive demanding or accepting pay of more than six or seven times what the average worker earns is in business strictly for the money. Workers, customers and shareholders be damned.

As the government ladles out billions to corporate American, the money should be conditioned on barring greed from corporate executive offices.

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2 Comments:

Anonymous Steve Brannon said...

Rick,
I don't understand how a company's board of directors can give the
OK to pay such high salaries. Are the controlling shareholders all in on it and just as grossly overpaid?

Aside from the ugliness of the top dog making so much more than the workers do, it seems to me that there is a bigger problem, one that extends beyond the individual company. Are these top-heavy companies prone to falling over in a sluggish economy? Will enough top-heavy companies in a weak economy fall into each other like dominoes and create a financial mess that will reach beyond their companies? A more troubling question: Are these high-salaried CEOs tied in with politicians and other dirty grease that keeps the corporate machine running? Is their value as familiar negotiators in off-the-books deals?

I don't get it. I don't understand how a business can run with over-compensated officers and remain competitive. Big business must be nothing like small business.

Steve

4:28 PM  
Blogger Rick Seifert said...

Steve:

I think the culture of many large corporation (indeed the "corporate world") feeds egos, which in turn are defined by, and fed by, grotesquely inflated compensation.

These folk really believe that money is a measure of their worth. The more money they "make," the more they value themselves in the context of the corporate and social culture. And, yes, the more the culture "values" them. (It's why the seven or eight houses of a Cindy McCain are so telling)

The whole thing is a distortion of values.

An alternative set of values goes this way: Your company, your employees, and your customers come first. You take care of them, and then, and only then, you take care of yourself. These alternative values ask "How much is enough?" What are my needs versus my wants and my ego gratification.

As I say, any CEO who hasn't adopted the latter set of values (along with its responsibilities), isn't worthy of a leadership job.

5:04 PM  

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