The more CEOs get paid, the worse their companies do!

Written by on February 16, 2015 in Guest Blog with 2 Comments

CEO salaryCEOs have been getting a lot of press recently. It’s not surprising really as they are the ones ultimately responsible for a company’s performance and are accountable to both stakeholders and staff alike. Forbes launched the opening salvo against wanton CEOs by saying, “across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. This is true whether they’re CEOs at the highest end of the pay spectrum or the lowest.”

The article and the report itself lambasted high-earning, poor-performing CEOs by linking that the more they were paid, the worse their companies did. In fact, this negative effect was most pronounced in the 150 firms with the highest-paid CEOs.

For the 5 percent of CEOs who were the highest paid, it was found that their companies did 15 percent worse, on average, than their peers. The paper also found that the longer CEOs were at the helm, the more pronounced was their firms’ poor performance.

The conclusion the report came to was that overconfidence was the main contributing factor and that CEOs who are paid huge amounts tend to think less critically about their decisions.

At this time of the year when most news reports are on the highlights of the last year, the BBC went out of its own conservative comfort zone to name the year’s five worst CEOs.

Writer, Sydney Finklestein, held back no punches in stating that, “in virtually each instance, the seeds of failure were sown in earlier success. These five chief executives were celebrated for their genius at one time, but all have fallen, sometimes in spectacular ways.”

The five, in ascending order of failure were Twitter’s Dick Costolo; Sears Holding’s Eddie Lampert; Tesco’s Philip Clarke; American Apparel’s Dov Charney and Banco Espirito Santo’s Ricardo Espirito Santo Silva Salgado.

Salgado is the family head and kingpin of an interlocking and complex set of entities that controlled the second-biggest bank in Portugal — and brought it to bankruptcy.

Of greater interest is that three of the five are involved primarily in retailing, a sector that is being rattled by the digital revolution and changes in the way people are buying goods.

Whilst it is evident that more people are buying online, CEOs of some ‘bricks and mortar’ retailing chains have been able to adapt more readily than others to heightened competition from cheaper stores that are operating more efficiently at lower cost levels.

Many CEOs opt for the tried and tested way of reducing costs and satisfying stakeholders quickly by reducing head count, but in retail that usually results in lower levels of customer service. Retailing is still heavily dependent on staff to stock shelves and serve customers.

Automation has helped bringing more efficiencies at managing stock levels and speeding checkouts but cannot yet replace the human element and ‘retail therapy’ that shoppers go to stores to seek out.

Price competition, high stock levels, rents, seasonal cash flows, theft and low ‘stock turns’ all contribute to the woes of retailers, but there is a trend towards monitoring and managing all aspects of the business using sophisticated software not unlike that used by telecoms operators.

Automation is providing continuous monitoring and detecting exceptions before they cause significant impact on retail business right from supply chain controls to continuously auditing pricing plans to assure yielding enough revenues.

7-Eleven México, with more than 1,700 stores across the country, recently announced that it was implementing enterprise business software to deliver end-to-end visibility and control of its retail processes, analyzing and identifying risks and monitoring and controlling deviations.

The trend now is to have a full picture of the retail operation and be able to act quickly in addressing any anomalies that may occur in real-time.

When enterprise business assurance becomes the norm we should see no retailers in that top five lousy CEO list, just as we don’t see any telco bosses there now. That should also remove the need for boards to make the single biggest cost reduction of all – firing the CEO!

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Rui Paiva

About the Author

About the Author: Rui is CEO and co-founder of WeDo Technologies, as well as COO of Sonae Information Systems (SSI). He is a member of the Executive Committee of Bizdirect, Mainroad and Saphety, SS Sonae Shared Services and, more recently, S21Sec, which is based in Spain. .


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  1. Avatar Bob says:

    The wonder is that some CEOs even get out of bed in the morning , given how much they’re trousering. I often wonder if at some future date we’ll look back in amazement at how much some very ordinary people were paid, not for setting up successful companies, not for brilliantly innovative ideas, not for ‘creating value’ in any sense that an ordinary person would recognise, but for not much more than running the shop for a few years and carrying themselves in the grand manner…

    • Avatar Tony Poulos says:

      I’m waiting for the day one benevolent CEO offers a small part of his ridiculous salary to keep his loyal staff employed rather than firing them to appease the sharemarket by showing how clever he is at cutting costs!

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