orgtheory.net

jack welch, not completely delusional about ceo pay

Brayden

Jack Welch, the former CEO of GE, is being tossed around by the media for blaming the media for the CEO compensation problem. In short, he believes CEO pay is only perceived as a problem because the media thinks its a problem, which is (in his mind) forcing a lot of good leadership talent to seek their fortunes in private equity. That’s just nonsense. CEO pay has become a national issue because of the rapidly increasing compensation gap (to which rapidly bloating CEO compensation packages have contributed), not because the media hates CEOs.

But Welch did make one good point in his diatribe:

The problem with CEOs is that the board screws up the succession plan. The most egregious payment systems come when someone gets fired, and the board has no ascension plan. Then they have to pay for a new star at another company.

Another intrepretation is that the only plan that many boards have when trying to revive a struggling company is to bring in a celebrity CEO with enough media cachet to at least temporarily boost their stock price and provide cover for the board. Rakesh Khurana’s fine book, Searching for a Corporate Savior, lays out this argument. By institutionalizing an external CEO labor market (compared to an internal search for CEO talent), boards have turned the negotiating power over to the talent pool. And when the celebrity executives have all the power in the negotiation, compensation packages explode.

Written by brayden king

January 22, 2007 at 7:53 pm

One Response

Subscribe to comments with RSS.

  1. The key is value as well, if the leaders are providing value to the organisation by consistent return on investment then no one queries the pay at the top…..When a middle manager doesn’t perform they are out with no pay off, when a leader doesn’t perform they leave with a huge payoff…..

    Like

    Anna Farmery

    January 22, 2007 at 10:19 pm


Comments are closed.

%d bloggers like this: