RSR Research: The CEO as Rock Star
Through a special arrangement, what follows is an summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
I’ve been thinking a lot about the role of the CEO in retail. We’ve seen the (shocking) debacle of Ron Johnson as CEO at JCP, the apparent impending turnaround (or, at least, slowing death spiral) of Best Buy in the hands of Hubert Joly, and Apple falling from the stratosphere in the post-Steve Jobs era. And so, I’m here to say today: "My position has evolved."
I’ve gone from thinking the average CEO is (mostly) grossly overpaid to thinking, "Hey, maybe they really are worth the big bucks when they get it right."
In fact, our survey respondents re-affirm this point of view in virtually every benchmark RSR runs. As frequent readers know, we use a framework called the "BOOT" to analyze most topics we write about. One of the O’s stands for "Organizational Inhibitors" and ways to overcome them. Seeing "Senior Management Championing Change" identified as a top-three way to overcome almost any organizational inhibitor has become completely routine.
Part of my "evolution" is that the "Rock Star CEO" is entitled to obscene compensation, but only if it is tied to results. I broached the idea to some of my partners at RSR:
Nikki Baird: "I don’t have a problem with that line of thinking. The only thing I’d throw out there is, what about the measure of risk for taking on the job? A lot of companies, when they take on a rock star CEO, are doing so because they need big changes. There’s always the risk that the organization (or the board) doesn’t listen. Sometimes it takes an eye-watering paycheck to get someone to sign up for a company headed downhill already, and sometimes it takes that size paycheck to get the board to take them seriously."
Brian Kilcourse: "I think the issue is ‘CEO as manager’ vs. ‘CEO as leader.’ CEOs should be leaders, in my opinion, and that implies that they must be good at two things. First, they have to have a vision that people can get behind. Then, they have to put a team in place that includes great managers."
As usual, we came to no real consensus. Still, we agreed that the CEO can make an enormous difference and should be rewarded handsomely when that difference goes to the good.
My goodness, I have a lot of friends who aren’t going to like this piece. I’ve moved far to the right of "Occupy Retail." But there are individuals with the rare vision and talent to infuse a company with greatness. If you’re lucky enough to work for one, don’t try to be one. Just enjoy him or her. And reap the rewards from success.
Discussion Questions
Are CEOs more or less important to retailing success today than in recent years? How justified is the high pay awarded to top-paid retail CEOs in light of the average worker’s compensation?
Trying to compare a CEO’s paycheck to the average worker is comparing apples to oranges. We don’t compare the NFL coach’s salary to the beer vendor. Overall on average, the pay is justified. Sometimes we have overpaid CEOs and every now and then we find one who is underpaid. CEOs have always and will always be important to retailing success.
I’m pretty well on the same bus as Paula on this one—though I’m standing, not comfortably sitting down.
First, I’ve always been puzzled by the “Rock Star” imagery—and it is used all the time. Be a Rock Star speaker, author, accountant, sales person, retailer, whatever. What does that metaphor say? Be a self-centered, obnoxious, unkempt, disdainful, drug and alcohol infused, heavily inked, trash the hotel room, womanizer. That’s our inspiration? Oh, they made ‘themselves’ rich, no doubt about that, all while throwing crumbs to the groupies. Surely we can find another metaphor where people are wonderfully wealthy, make other people wealthy and are also nominated for sainthood.
Second, there are multiple millions of unsung people “with rare vision and talent who infuse the company around them with greatness.” I think that is a natural endowment in us all – it’s just that we’ve been taught that we don’t deserve that gift and that we should walk and work in fear of those who “manage” us, be they parents, teachers, clergy, bosses, politicians, etc.
Try to “be one?” Maybe you are one. What if the whole organization was filled with such vision and inspiration? Every CEO, District Manager, stock person, floor staff. Now wouldn’t that be a trip? Imagine the possibilities!
Welcome to the real world of business, where people are paid FOR THEIR CONTRIBUTION, not for being a warm body. So, how much does the superstar CEO contribute to the success of the enterprise, compared to the “average” employee? That is absolutely nobody’s business but the owners of the company, exercising their own judgment, through their elected board, who selects the management—in publicly traded companies.
Ideally, compensation is all about performance, but of course there is corporate politics, stupidity and crony capitalism. This is what activist investors are about, and another big story today is how these rightful owners are having a greater impact on corporate governance in a number of major companies.
A CEO’s importance to retail success today is hugely in the eye of the beholder and his/her selected board of directors. But a reverse impression has been swelling like a boil for the several decades.
The average worker’s compensation should always be both competitive and fair. A CEO’s pay and rewards should be in line with the annual increase or decrease in the company’s sales health and stock price, which directly affects the owners’ rewards.
I think my friends at RSR must have traded in their Rolling Stone subscriptions for Fortune subscriptions.
I have no issue with the concept of the CEO as rock star, per se. I do have a problem with the endemic over-compensation of top executives. A CEO making $24 million a year (not an unusual number) is too far removed from the level of comp his employees receive. It breeds a kind of cluelessness that hurts decision-making and distances the executive suite from the customer.
David’s analogy is specious. When was the last time you heard an NFL coach praising beer vendors as the key to the team’s success? The answer—Never. On the other hand, retail CEOs regularly point to front-line workers as the key to organizational growth. If CEOs are telling the truth, than it is counterproductive at best, harmful at worst, for them to reap rewards at an exponentially higher rate of growth than those who are actually the key to a company’s success.
A CEO that is a LEADER is critical to the growth and PERFORMANCE of a retail org. Sometimes a leader is very visible for the sake of a company brand. They act as an element of marketing the shop, but they are out there being seen to help improve the performance of the business—to strengthen the brand. Other times the leader is hardly ever seen or as Lao Tzu (not a part of RSR) said ” A leader is best when people barely know he exists; when his work is done, his aim fulfilled, they will say: we did it ourselves.” I can rattle of about 10 top retail chains that fit Lao’s program. With a leader like this that really makes the team say “hey, we did this ourselves” has for sure earned their pay and a few gift certificates for the chain.
Be a leader rather than a superstar and you will go far. TRedd 2013 (really)….
Let’s keep it real.
There are some solid CEOs in our industry and I had the opportunity to meet and have some outstanding discussions with a couple of them at a recent industry meeting. However, I think for the most part, the true vision, and the true message that a visionary CEO might have often doesn’t find its way down the organizational chart in a meaningful or effective way.
The other issue for me is that most major retailers are publicly held companies that have to show some good numbers every three months, and so in effect, it’s the tail wagging the dog, with shareholders dictating what happens day to day, month to month, quarter by quarter in the company. This type of mentality restricts vision, it stifles long-term thinking, and it puts retailers in “safe mode” where very little can be done to make big strides.
In sports the manager/coach’s salary is usually less than at least half the team he leads. In sales, the sales managers earn less than most of the top sales people he/she leads. Their bonuses come from the rewards their top people earn/accomplish.
But retail is another animal altogether. Retail needs someone at the helm steering them in the right dirsction. Someone with the vision to get them to the top of their profession. These CEO rock stars earn their money when they are successful. They certainly don’t earn it when they do not reach the goals and objectives they are charged with. Yes, they earn the big bucks. But maybe the contract should be incentivised, as much as salary based.
CEOs are overpaid. Of course there are a few great ones that perhaps deserve the high compensation, but for every good one there are twenty bad ones. When bad CEOs go down in flames and bring companies and tens of thousands employees with them, there are no consequences to that, or at least not the same consequences that the average worker faces.
C-suite compensations should be tied to performance, and not just short-term performance metrics that allow CEOs to slash expenses and investments in the company’s long-term viability to bolster short-term earnings and inflate stock prices.
A couple of additional points to the good stuff above. First, this is not just relevant to retail. Any public company needs a visionary leader who can rally the troops, the media, and Wall Street. Warp-speed communication requires this.
Second, pay levels are what they are. You want a rock star to join your band, you gotta pay for him/her to play. Plenty of other bands are out there. Nice that we have rock stars for this easily exploitable metaphor.
There will always be superstars among us that just seem to roll a seven every time and make great things happen. I don’t think it’s coincidence. I do think it is the inherent talent of that certain individual. And to those leaders, mavericks, whatever you want to call them, go the spoils!
Then there are the regular folks who try to keep the ship righted and everyone on board. While they too do a stellar job, what bothers me is the discrepancy between their earnings and the guys standing right beside them.
I’m not talking about comparing the coach to the beer seller. I’m talking about comparing the CEO to the SVP next to him. Therein lies the disparity that rolls down to the lowest of low.
Don’t get me wrong. CEOs are very important and have their necks on the line, however, whose neck is the first to roll when things go bad? Usually not the CEO. The CEO is the last straw to break.
Paula, I can’t think of a single time that I have disagreed with you but here it is! (Actually I don’t think we’re that far off, I have just removed the superstars from my case.)
To get the job done, it takes a team with a good leader, and the team then needs to work together to turn the ship or keep it on course or win the race. The big chasm between the pay to the CEO and the next in line, then the next, and the next is where the problem lies, IMHO.
Having worked for both extremely successful CEOs and unsuccessful CEOs, I find one major difference. The successful CEOs listen to people. I don’t mean they take advice from people, they listen to others and incorporate ideas. They change and adapt to the situation, and are able to sell their vision and build a structure to execute the vision.
Having been at Coca-Cola during the great debacle (new Coke) we were given a structure and strategy for replacing the old with the new. When that didn’t work out as planned we were given a new structure for replacing the new with the old, but didn’t restrict choice. The company’s management were bigger heroes after the debacle than they were before because they listened. As one manager said when asked if this move was done on purpose “we aren’t that smart, and we aren’t that stupid.” But the fact remains that the Coca-Cola company grew share with new coke and grew it more when the old Coke was reintroduced.
I have never begrudged anyone at Coca-Cola one penny of salary and/or bonus.
The first question (Are CEOs more or less important to retailing success today than in recent years?) is entirely valid. The second sounds like it comes from a union perspective—why compare CEO compensation to ‘average worker’ compensation?
Look, CEOs are paid market value, just like everyone else. If the market is in need of correction, it will happen spontaneously, not by a bunch of people envying someone else’s pay stub.
As for the unions, perhaps they might compare their pay to the average line worker in China or Pakistan. Should the unions think about raising the standard of living of the line workers making pennies per day, or about bringing down their own pay “in light of the average worker” compensation in developing countries?
Class envy is ugly.
Pay for performance. From CEO on through the organization…to the line-level employees. Simple and fair. Even when life isn’t.
I’m curious why Paula’s thinking has—as she puts it—”evolved.” How is JCP’s crash-and-burn different than, say, Ward’s under Sewell Avery? Well, okay, Ward’s was a slow-motion disaster, but the point is still the same. Ever since Moses, we’ve known leadership can make or break an endeavour; what’s happened recently that’s different?
The comparison to front-line compensation is a red herring; the benefits an “average” employee brings are easily measurable, and a (presumably) efficient market exists to determine their cost (wages); and no lower-level worker, however horrible, is going to sink the ship. Obviously neither of these is true for the captain.
Is a $100M compensation for a CEO unjustified? What if he/she brought the company $5B in profit? What if someone else would have done it for $50M…or $500K? Much like democracy being the worst of all governments—save for all others—our current compensation system(s) may be the worst, save for all others….but that doesn’t eliminate the possibility they’re still bad.
To Bobby Martyna: If the first question is valid than so is the second. Follow the logic. If CEOs are no more important or perhaps even less important today than in the past (so says the poll so far), what justification is there for the exponential increases paid to upper management over recent decades when rank and file wages have not even kept up with the rate of inflation?
As an admirer of Henry Ford, I’d suggest that many in management inside and out of retailing have forgotten the important lessons he taught. “No one loses anything by raising wages as soon as he is able. It has always paid us. Low wages are the most costly any employer can pay. It is like using low-grade material—the waste makes it very expensive in the end. There is no economy in cheap labor or cheap material.”
@George — there is no justification for exponential pay increases. There is only the market—you will see a correction if what you say regarding pay to performance is true. There is no cabal of conniving and collusive CEOs that are refusing to take jobs for less than mega bucks. There are job openings, candidates and market compensation.
I generally dislike sports analogies, but what is the justification for paying sports figures exponentially more than, say in the 60s? Is Johan Santana exponentially better than Sandy Koufax? It’s not inflation—it’s the market.
I do agree wholeheartedly that owners and management should always pay line workers as much as the P&L of the business allows. But I don’t see the reason for a ratio of execs to line—that just causes people to focus on the wrong things and leads to government controls. Socialistic thinking.
In a capitalist society, the opportunity is there for line workers to become execs—and highly paid CEOs. That striving is what creates great individuals and great companies.