October 23 2009
by John Backus

Executive Compensation

Today I turn the blog over to Walt Shill, a CEO of one of our portfolio companies many years ago, and now a very senior executive at Accenture.  I love the way Walt thinks and writes – and post this below with his permission.  The topic is executive compensation, but at the end he has some very practical tips to manage your own career, or to help those who work for/with you.


For two summers in college I worked for Kohler making toilets in a large, very hot factory – working for an hourly wage was an eye opening and educational experience….

…Walking out of the plant on my first Friday afternoon, I was surprised to see a dozen wives waiting for their husbands…. How nice, I thought, greeting them after a long hard week at work…. Lazarus, one of my co-workers, laughed hysterically. Friday was payday and his wife was there to get his check…. The kids needed food and he had a history of getting home Saturday morning with only a fraction of his check left….

Executive compensation is now a hot topic…. In fact, it has been a hot topic for quite a while…. Socrates argued rulers must be paid…. Plato argued the highest communities wage should not exceed five times the lowest…. JP Morgan increased it to 20 times the average…. Roosevelt attempted to cap pay at $25K ($331K today). The outrage over exec comp on the 80s led it to rise to CEOs earning 140 times the average by 1991…. The deep concern over excessive compensation during the dotcom bubble led to more stock options…such that the average is now over 200.

Our society/system has chosen to pay some CEOs, athletes and celebrities a lot of money – here is a sample of 2007/2008 annual comp:

Oprah      $275 million
George Lucas      $170
Tiger Woods     $128
Sanjay Jha (Motorola)   $104
John Thain (Merrill Lynch) $83 – 2007
Tyler Perry     $75
Bruce Springsteen    $70
Howard Stern     $70
Phil Mickelson    $62
Adam Sandler    $55
Ray Irani (Occidental)   $49
LeBron James     $40
Floyd Meriweather    $40
Vikram Pandit (Citigroup) $38
Shaq      $35
Kobe      $35
A-Rod      $35
Steve Jobs     $1 – not $1M, just a dollar (but he gets free iTunes downloads)

So if I tally it correctly, 75 celebrities and sports figures earned more than $20M and 26 CEOs that earned more than $20M….

I get that we bailed out the banks and salaries must be reasonable…but aren’t most of the stadiums subsidized by taxpayers through tax exempt bonds? If taxpayers supported the new Yankee Stadium with $1B in financing, should A-Rod’s salary be capped?

Now I have nothing against, say, Adam Sandler – but I am struggling to understand how he contributed more to the well being of our society than say Vikram Pandit?

And what does it say about our society when the average teacher salary is $40,000 and the average fire fighter salary is $50,000.

By the time Howard Stern takes his coffee break in the morning he has earned more than the soldier in Iraq will in a year….

It seems like compensation at the extremes is tough to justify at all…. It is not related to value at all….

But then again no one has prevented me from becoming a pro baseball player, actor, investment banker or having a radio talk show….

But what about consultants and what we do for society? ….

At bonus time in my first year in consulting someone in our starting class of 15 in the Cleveland office figured out that our bonus had not been prorated appropriately…and we were each due an additional $600…. I drew the short straw to bring it up to one of the senior partners…. Steve was quite annoyed…never even looked up from the document he was writing as I talked…. “Yeah, yeah, I will look into it”…long silence…. I started to sheepishly walk out.…

“Walt, I have a suggestion for you and your colleagues – focus your time on 
client impact, not your paycheck – that pays the most over the long haul.”

….there was outrage among the waiting group when I reported the encounter…. The error was corrected…and as time passed I found he was right…and I have asked and answered a lot of questions about compensation over the years….

So as I listen to the debate over executive compensation and wait to see about my rating and bonus for the year, I have decided to remember the advice I have received over the years that I have come to believe is true:

focus on impact and performance, not compensation

comp in a single year is not important, the trend is very, very important

make sure your supervisor understands your contributions

never at the expense of others,

never in excess of what was really achieved,

when in doubt, be modest and conservative

lobbying is always recognized and not appreciated

never ask for a raise – ask for more responsibility

compensation usually lags actual impact, but almost always catches up

if a big gap continues, the organization does not recognize or value the contributions – if other organizations do, thenperhaps a change is in order

the market for talent is fairly efficient over time

be thankful, the poverty level for a family of four in the US is $22,000 and a billion people go hungry every day – by that measure most of us are quite wealthy

Have a great weekend,


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