Recent pay packages to so called professional CEOs have reached the sky. Nothing seems to be the limit. Salaries like Rs. 2 to 5 crores per annum seem to be common. Yet, how really effective are these CEOs in changing the fate of their organisation ? Are they really worth that much. And really, how long do they last in their organisations to make a long term difference ? What are the repercussions of their salaries on the morale of their staff ? How do the CEO’s really convince the management that they are worth that much ?
Point No 1 that comes to the mind- is the CEO the founder or promoter of the business ? Did he take the organisation to a great success from scratch. If not, if he was introduced into the organisation after the business reached great heights, was it his achievement ? If not, he really does not deserve the pay.
Point No 2
What does such a guy do after taking charge? Normally to show his utility and hide his expense, he tries to cut corners- he sacks a few people drawing say Rs 30 lakhs a year. 5 people gone means he has saved Rs 1.5 crore, say 50% of his salary he has saved ! Another Rs 1.5 crore comes from reducing advertising and travelling budget due to “austerity” measures! – so he can now show the management that his salary is recovered !!! . Such CEOs always immediately on joining cut expenses on advertising, marketing, sales, personnel & travel and company lunch to cut costs and show profits, but these are the decisions that cost the companies crores of rupees in business !!
Point No 3
The other things this type of CEO does is introduce new work measurement and extensive reporting formats to make performance measurements sound more professional. The formats are too cumbersome,academic and possibly developed in another set up earlier where the CEO worked – and not applicable to current organisation. Another thing he does is reshuffle the organisation chart and create new divisions and verticals. All this in reality disturbs a well settled organisation and does not bring in any tangible value. As the CEO is new,
the management does not object and the staff does not dare to protest.
At this stage 3 to 6 months have passed !! ( Rs 1 CR Nett after tax is in the CEOs bag ) . Company has not shown any improvement , in fact there deterioration in sales & profitability.
Point No 4
What next… the management is starting to get jittery over their selection of the CEO ( & his salary )….Really when can we see improvement in sales and the bottom line?…The CEO in the board meeting says that he is just settling down, and the management should see a distinct difference in operations in a few months time…..the CEO then identifies a few people who are in the salary range of Rs 30 to 40 lakhs per annum. He slowly tells them to leave and replaces a few with half their salaries, but not even with 25% of their competence. Great- the salary bill drops by another Rs 1 crore. The CEO has something to talk about !!!
At this stage 9 to 12 months have passed !! ( Rs 2 CR Nett after tax is in the CEOs bag ) . Company has not shown any improvement , in fact there is further deterioration in sales & profitability.
Point No 5
What next……at the AGM, there is serious discussion about the the company’s performance. The owners are really wondering their decision to hire the CEO was correct. They question the CEO. His answer is -all efforts taken are in more or less correct direction, and next year the results of this will be seen….my assurance.
The CEO goes home, a lot of tension on his head. He has already chucked out a few guys, cut down on expenses , tried some cosmetic measures to to change the company, but now what ? What next can be done? The market situation is too bad, China is destroying his market share, no idea will really change his sales and business. The CEO knows he is losing out. He takes out his laptop, searches for his last CV ,and updates the same.
Point No 6
Next day at work…..he takes stock of his people & targets. he feels they are not performing, not him. He fires a couple of more guys , and brings in some high sounding designated people who were loyal to him in the earlier company. Salaries?- at 50% more than those fired. He tells the new guys that he wants RESULTS.Goes back to his laptop and uploads his fresh CV to consultants loyal to him. As a last ditch effort hires an expensive management consultant to make a report on his company.( Owned by a jobless friend of his from his MBA batch of the 90’s ! ). The consultants “consults” the employees(!) , takes a lot of information from them, (!) and makes his nicely worded report in English and packs the old wine in a new bottle. The CEO settles the 1 crore bill of the consultant and organises a lot of procedural changes in the organisation, which saves a couple of crores more in salaries, but does not improve anything !! At this stage 15 months have passed !! ( Rs 2.5 CR Nett after tax is in the CEOs bag ) . Company has not shown any improvement , in fact further deterioration in sales & profitability.
Point No 7 :
In the next quarterly meeting the CEO is taken to task by the board. The CEO has nothing much to say. His power point slides which he mastered during his MBA, do not reveal much as to how the future will change.
The CEO goes home, gives final touches to his CV and sends it to his HR consultant friends and to people he knows. Another 3 months pass.. The CEOs bag is Rs 3 crore nett full.
Point No 8
What next ??? The management has started the search for a new candidate. The CEO s aware, but his new flat booked in Powaii is almost ready. He is looking for a job now in Andheri East. The sales do not improve ,the collections do not improve, the bottom line takes a hit. The CEO complains to his wife that the management does not understand his long term plan for the organisation. and he is fed up. As a last ditch effort, he tries to get in SAP- something that he is not aware of at all. He calls his IIT hostel mate who heads a SAP company, and agrees for a contract of Rs 3 crores.
The management comes to know this. They meet at a Malabar Hill flat of one of the investors & decide to throw this guy out in 3 months. The same night the CEO has taken stock of his earnings in 2 years- Rs 5.25 cores after tax. The empty “gala” under his Powaii building is on his radar for a purchase and to plan his consultancy business after retiring “early”. He writes the cheque for the down payment……. A new consultant has emerged.Next day, there is a call from his friend for a CEO level position in another limited company. The CEO rushes for the interview, shows his salary slip and luckily get the job at Rs 4 crores per annum negotiating a 30% pay hike.. Finally another “BAKRA” Company ( scapegoat )has been found by the CEO. Spending the next 2 years at least is not going to be a problem!!! A new CEO has arrived !!!!
THE CEO calls a meeting in his current company. Privately expresses his ” gross dissapointment” over the management not being clear in its objectives and hence he would like to move on as it is waste of time for him in the current organisation. A story is over.
Rs. 6 crores with tax has gone in the drain due to the CEO. A lot of lower salaried employees at the same time also did not contribute properly as they felt that they were really UNDERPAID compared to the CEO who they knew did nothing.
BOARD OF DIRECTORS, OWNERS & INVESTORS—GENTLEMEN & LADIES- ANSWER THIS PLEASE:
DOES A CEO ONLY MAKE A DIFFERENCE TO AN ORGANISATION ? IF HE ALONE WAS SO GREAT TO CHANGE THE COMPANY’S FORTUNE, WHY DO YOU NEED PEOPLE DOWN THE LINE ? ARE THE GUYS DOWN THE LINE IDIOTS AND NON PERFORMERS THAT THEY SHOULD GET RS 5 TO 40 LAKHS AS PAY AND THE CEO RS. 3 CRORES? WHAT EXACTLY DOES THE CEO DO ? DOES HE CREATE MAGIC ? DOES HE MEET TOP LEVEL DIPLOMATS & PRIME MINISTERS AND OTHER CEOS TO GET ORDERS AND INCREASE BUSINESS? IS HE A GREAT TECHNOCRAT IN TUNE WITH ENGINEERING THAT HE INVENTS NEW PRODUCTS AND GETS THEM PATENTED ? WHY DO WE NEED TO PUT THEM ON SUCH A PEDESTAL? DID HE START THE BUSINESS IN THE FIRST PLACE ? HE CLAIMS TO BE TECHNO COMMERCIAL MANAGEMENT EXPERT, BUT DOES HE REALLY KNOW ANYTHING TECHNICAL, OR COMMERCIAL WELL ?
Actually when you hire a CEO at Rs 3 crores p.a.& above and all other staff is at an average salary of Rs 15 lakh p.a., automatically you have send a signal to the CEO that he is GOD and all the others below are idiots. The excellent guys down the line also accept willingly that if the CEO is so good to get a fantastic pay, then let him do wonders for the organisation, why should I at such a paltry pay ?
Solutions to avoiding such CEOs and avoiding losing tons of money are simple HR rules- old ones from the time there were no VP (HRs) and are still very effective
1. Do not have more than 20-25% of salary as difference between 2 consecutive levels of hierarchy at top 3 levels in the organisation. Distribute pay & responsibilities equitably.
2. Pay commissions to staff on sales and other performance related incentives. The performance related should touch 50%-100% of the salary
3. Identify performers and groom them to take over higher positions. Train them at your cost. You do not need hi fi qualified candidates.
4. The pay scales at mid management levels should have 15 to 20% difference and at top 3 levels at 25% difference. In NO way, should your CEO draw Rs 3 crores and your VPs Rs 40 -50 lakhs, and your Managers just Rs 15-20 lakhs and your field sales staff Rs 200,000 P.A. This huge difference in pay scales is destroying organisations and not motivating anyone.If you distribute the CEO’s salary as performance bonus to staff, your company will not need a CEO and will do twice the business that the overpaid & insecure CEO can do.
5. Assure promotions to people on a regular basis with higher positions/ promotions and just 20% higher pay every promotion.You will soon find CEOs, Presidents and VPs from within who are happy, and work at normal pay levels and who deliver, rather than the monsters that you buy from the market at over valued salary levels..
6. No human being is so supreme to change business situations, or change market sentiments, or a failing economy and direct hundreds of employees to double their output. Do not try to find one.
Even Godmen cannot change the fate of an organisation, forget a ordinary mortal whom you have put on a pedestal just because of his professional degrees.
A company or organisation runs on its own strength , not on the strengths of one person. So build your organisation, do not build your CEO’s status . A
ll the difference can be made by all your people in the organisation. So do not waste your money on one person , better invest in all your employees.
7.The middle and lower end of your pyramid actually delivers results and is responsible for the quality , speed and profitability of output and not the top end. Put your money on the right resources.
Rather than pay one person the salary of 50 to 100 average people, pay all the people 10-20% more in terms of profit sharing or sales revenue or for productivity, and see the results improve dramatically all over.This fundamental change will ensure that no person above a crore of rupees of salary is ever required.
ISSUED IN THE INTEREST OF MANAGEMENTS & OWNERS LOOKING FOR BUSINESS SURVIVAL IN MODERN TIMES.
Written by Dinesh Bandiwadekar