adminShelter Chieza Change Management
One cannot afford to ignore the stories involving outrageous salaries and perks that some executives at public institutions that are being reported in the newspapers on almost a daily basis.This needs to be nipped in the bud especially when these public entities are failing to perform.
Boards of such entities should also be reconstituted. While the executives are under fire the board of directors should also come into question on how they approved such huge salaries when the companies are not performing.
Basic economics dictates that a CEO’s remuneration is normally based on the company’s incremental profitability and revenue. It therefore does not make business sense if top management reward themselves with high perks when the company is drowning in debt.
The chief executive makes strategic decisions related to strategy formulation. In fact, he makes strategic choice from among strategic options to achieve objectives. It is generally acceptable that compensation for the CEO and executive managers is different from any other compensation.
It is composed of a base salary, a bonus, an incentive in any form prescribed such as shares, a guaranteed severance package in case of eventualities leading to retrenchment, a signing bonus and other additional benefits such as paid vacation, transport.
In the developed world it is not uncommon for chief executive or senior management to take pay cuts or forgo bonuses when the company fails to makes a loss or is going through a difficult period.
Most of the executives opt for the cuts or forgo their bonuses because it is what good corporate governance dictates. Some examples that come to mind are that of recreational-vehicle maker Winnebago Industries Inc, which is based in Forest City, Iowa that implemented a tiered salary cut in March of 2009 due to challenges that the company was going through as a result of recession.
Chief executive Mr Bob Olson took a 20 percent pay cut, and other senior executives took a 10 percent cut while all other salaried employees’ pay was reduced 3 percent.
A month earlier Hewlett-Packard had also instated a similar pay cut. Chief executive Mr Mark Hurd took a 20 percent reduction, and other employees gave up between 2,5 and 15 percent of their pay.
That is a high level of maturity and business acumen at its best. Going forward, it is crucial that labour bodies and ethics committees come up with a way of ensuring that the salary discrepancies between senior management and the rest of the employees are narrowed.
It is immoral for a CEO’s hourly wage higher to be 10 times the monthly earnings of the lowest paid worker. Yes they must earn a lot more than the least paid worker but the difference should not be obscene. Let’s put a stop to this insanity salaries should be based on performance.
Till next week, May God richly bless you!!
Shelter Chieza is an Advisor in Management issues. She can be contacted at [email protected].
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