Stories
Stories
What’s It Worth to You?
How much is a CEO worth? What is appropriate compensation for the leader of a large and complex organization? One frequent reply has been “Let the market decide.”
The “market” apparently decided that Lehman Brothers CEO Richard Fuld was worth nearly $500 million over the eight years during which he was leading a once-mighty firm into bankruptcy. Markets don’t always get it right, we now know. Nor do company boards when they determine CEO compensation, as HBS professors such as Jay Lorsch, George Baker, Brian Hall, Rakesh Khurana, and Fabrizzio Ferri have written about extensively.
Is there an ethical component to compensation and, if so, does it matter? General David Petraeus, who holds a doctorate from Princeton, oversees wars in Iraq and Afghanistan, is responsible for the lives of tens of thousands of war-zone servicemen and women, and is himself frequently in harm’s way. Yet his compensation is $180,000 a year, what Lehman’s Mr. Fuld used to make in about ten hours of work. By that yardstick, Petraeus arguably deserves $180 million a year, but could he lead his troops successfully if he earned that? The market also says a police officer on average is worth $50,670 a year and a firefighter $44,130, despite the fact that they, unlike the rest of us, are expected to give up their lives, if necessary, to do their jobs.
CEOs often talk about leadership and values, but can a CEO who espouses a values-oriented leadership philosophy also accept excessive compensation? Leadership and values are underpinned by morality, but excessive compensation is imbued with immorality because it implicitly devalues other human beings. A CEO like Max De Pree of Herman Miller understands (as does the military) that a true leader cannot so distance himself from those he would aspire to lead. That’s why De Pree capped his compensation at twenty times what his company’s lowest-paid employee received.
Kenneth Feinberg, the 9/11 special master, eventually came to understand that “all lives should be treated the same.” That’s because a 9/11 widow asked Feinberg why he had demeaned the memory of her husband, a fireman who died at the World Trade Center, by judging him to be worth less than a banker. (A few years later, as special master after the Virginia Tech massacre, Feinberg compensated all victims equally.)
Shouldn’t CEOs who would claim the mantle of “leadership” answer to a higher standard than professional athletes, entertainers, and other excessively compensated individuals who are in it just for themselves? Leadership is an honorable calling, not a cash cow. Excessive compensation and ethical, values-based leadership — can the twain ever meet?
Post a Comment
Related Stories
-
- 09 Sep 2010
- Alumni Stories
Taking the Long-Term View
Re: Derek Oland (OPM 18) -
- 01 Sep 2010
- Alumni Stories
Kenneth Feinberg, Special Master
-
- 01 Jun 2010
- Alumni Stories
M.I.A. Boards
Re: David Zweig (MBA 1983); John Gillespie (MBA 1983); By: John Gillespie;David Zweig -
- 21 Apr 2010
- Alumni Stories
Have Women Shattered the Glass Ceiling?
Re: Ilene Lang (MBA 1973)