CXO’s @ Rs 30 million per annum & sales executives at Rs. 30,000 per month……The fallacy of paying exhorbitant salaries to CXOs- the time for promoters owners to think seriously

Recent pay packages to so called professional CEO/CXO’Ss have reached the sky. Nothing seems to be the limit. Salaries like Rs. 20 to 50 million per annum seem to be common. Yet, how really effective are these CXOs 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 CXO’s really convince the management that they are worth that much ?

The first point that comes to the mind- is the CEO/CXO’S 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, does he really deserve the pay ?

The second point is 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 terminated means he has saved Rs 1.5 crore/ 15 million , say 50% of his salary he has saved ! Another Rs 1.5 crore/ 15 million comes from reducing advertising and travelling budget due to “austerity” measures ! – so he can now show the management that his salary is recovered ! . Such CEO/CXO’Ss always immediately on joining cut expenses on advertising, marketing, sales, personnel & travel and even company lunch to cut costs and show profits, but these are the same decisions that cost the companies several millions of rupees in sales & profits!!

The other things this type of CEO/CXO’S 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/CXO’S 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/CXO’S is new,
the management does not object and the staff does not dare to protest.
At this point of time, 3 to 6 months have passed !! ( Rs 10 miilion Nett after tax is in the CEO/CXO’Ss bag by now ) . Company has not shown any improvement , in fact there deterioration in sales & profitability.

What next ?… the management is slowly starting to get jittery over their selection of the CEO/CXO’S ( & his salary )….Really when can we see improvement in sales and the bottom line, they ask ?…The CEO/CXO’S 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/CXO’S then identifies a few people who are in the salary range of Rs 3 to 4 million 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 10 million. The CEO/CXO’S has something to talk about !!!
At this stage 9 to 12 months have passed !! ( Rs 20 million Nett after tax is in the CEO/CXO’S’s bag ) . Company has not shown any improvement , in fact there is further deterioration in sales & profitability.

What next……at the next AGM, there is serious discussion about the company’s performance. The owners are really wondering their decision to hire the CEO/CXO’S was correct. They question the CEO/CXO’S. 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/CXO’S that day goes home, a lot of tension on his head. He has already chucked out a few guys, cut down on some really important expenses , tried some cosmetic measures to change the company, but now what ? What next can be done? The market situation is too bad within the country, China is destroying his market share, and no idea will really change his sales and business. The CEO/CXO’S knows he is losing out. He takes out his laptop, searches for his last CV ,and updates the same !.

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 . He then goes back to his laptop and uploads his fresh CV to many consultants loyal to him whom he had given business for recruiting in his earlier organisations as a client. At the same time, 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 80’s/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/CXO’S settles the RS 10 million bill of the consultant and organises a lot of procedural / organizational changes , which saves a few millions more in salaries, but does not improve anything !! By this time, 15 months have passed !! ( Rs 25 million Nett after tax is in the CEO/CXO’Ss bag ) . The company has not shown any improvement , in fact there is further deterioration in sales & profitability.

In the next quarterly meeting, the CEO/CXO’S is taken to task by the board. The CEO/CXO’S 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 economic situation in the country and the Chinese belwo cost products have ruined the market, and even God cannot do anything. The CEO/CXO’S goes home, gives final touches to his CV and sends it to his HR consultant friends and to people he knows. Another 3 months have passed. The CEO/CXO’Ss bag is Rs 30 million full.

What next ??? The management has started the search for a new candidate. The CEO/CXO’S s is aware of this , but by this time his new flat that he booked at Powaii is almost ready. He is looking for a job now in Andheri East and not at Mahalaxmi The sales do not improve ,the collections do not improve, the bottom line takes a hit. The CEO/CXO’S complains to his wife that the management does not understand his long term plan for the organization, and does not appreciate his top business school MBA knowledge and have a Baniya mentality – and that he is finally 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 Engineering college hostel mate who heads a SAP company, and agrees for a contract of Rs 30 million.

The management comes to know this. They meet at a Malabar Hill flat of one of the directors & decide to throw the guy out in 3 months. The same night the CEO/CXO’S has taken stock of his earnings in 2 years- Rs 55 million after tax. The empty “gala” under his under completion Powaii building is on his radar for purchase and a plan to start a consultancy business after retiring “early” is on the cards . He writes the cheque for the down payment……. A new consultant has emerged ! .Next day, luckily there is a call from his consultant friend for a CEO/CXO’S level position in another public limited company. The CEO/CXO’S rushes for the interview, shows his salary slip and luckily gets the job at Rs. 40 million per annum negotiating a 30% pay hike. Finally another “BAKRA” Company ( scapegoat )has been found by the CEO/CXO’S. Spending the next 2 years at least is not going to be a problem !!! A new CEO/CXO’S has arrived…..two more years of fooling around to be done and then to operate from the Powaii office of his own !!!!

Next week, after receiving the offer letter, the CEO/CXO’S calls a meeting in his current company. He privately expresses his ” gross disappointment” 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.
By the time the guy leaves his office, Rs. 6o million with tax has gone down the drian. 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 CE,O who they were sure was doing nothing.

BOARD OF DIRECTORS, OWNERS & INVESTORS—GENTLEMEN & LADIES- ANSWER THIS PLEASE:
DOES A CEO/CXO’S 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 only 10 to 20% of the CEO/CXO’S’s salary ? WHAT EXACTLY DOES THE CEO/CXO’S DO ? DOES HE CREATE MAGIC ? DOES HE MEET TOP LEVEL DIPLOMATS & PRIME MINISTERS AND OTHER CEO/CXO’SS 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 STUFF PROPERLY , OR COMMERCIAL REALLY WELL ?

Actually when you hire a CEO/CXO’S at Rs 30 million p.a.& above and all other staff is at an average salary of Rs 1.5 million p.a., automatically you have send a signal to the CEO/CXO’S that he is GOD and all the others below are idiots. The excellent guys down the line also accept willingly that if the CEO/CXO’S is so good to get a fantastic pay, then let him do wonders for the organisation, why should I show results at such a ( comparatively ) paltry pay ?

Solutions to avoiding such CEO/CXO’Ss and avoiding losing tons of money are simple HR rules- old ones from the time there were no similar types of Sr.VP / EVP -HRs , and the rules are 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/CXO’S draw Rs 30 million and your VPs Rs 4 -5 million, and your Managers just Rs 1.5-2 million 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/CXO’S’s salary as performance bonus to staff, your company will not need a CEO/CXO’S and will do twice the business that the overpaid & insecure CEO/CXO’S 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 CEO/CXO’Ss, 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 organization due to depressed market conditions, and Chinese pricing, forget an ordinary mortal doing it, whom you have put on a pedestal just because of his professional & hyped up degrees or past experience in another organization..

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/CXO’S’s status & wealth . All the difference can be made by all your people in the organisation. So do not waste your money on one or five special persons , better invest in all your employees.

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 average 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 / 10 million of rupees of salary is ever required.

ISSUED IN THE INTEREST OF MANAGEMENTS & OWNERS LOOKING FOR BUSINESS SURVIVAL IN MODERN TIMES & CURRENT SITUATION.

Written by Dinesh Bandiwadekar: has personally seen great companies go down the drain with the above phenomenon. He is Director of Persona Academy.
http://www.personaacademy.in

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s