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Making A Sport Out Of CEO Pay

Wed, 05/25/2011 - 12:09pm
by Mike Schmidt, Associate Editor, Manufacturing Business Technology

I’ve been a die-hard sports fan all my life. As I’ve grown and matured over the years, my highly-emotional, rabid fandom has evolved into something more statistically-oriented and analytical in nature. But that also means I have less and less tolerance for coaches and executives who don’t look at sports the same way. Call my attitude snobbish or egotistical, but if I’m going to invest my time and energy in following sports, I prefer if high-level management takes a rational approach to running my favorite teams.

So few things in life make me cringe more than when my beloved Milwaukee Bucks, Milwaukee Brewers, or Green Bay Packers throw mounds of money at an overvalued free agent player (I could name names, but I won’t), or trade for a player with an albatross of a contract. These moves can have devastating and long-term effects on organizational goals and results. No one stands to benefit when such a move is made; even the overpriced player is adversely affected. He or she often becomes a lightning rod for fan and media criticism, and it often overshadows the contributions the player brings to the team.

So forgive me if I fail to properly understand the reasoning behind what is currently taking place in corporate boardrooms across the United States. I can’t seem to wrap my mind around the fact that CEOs at the nation’s largest companies are receiving more compensation than in 2007 – before the all-too-recent “Great Recession.”

A recent Associated Press analysis found the typical pay package for the head of a company in the Standard & Poor's 500 was $9 million in 2010. That reversed two straight years of declines, but was still significantly more than the typical pay package of $8.4 million in 2007 – when the nation’s economy was booming. Furthermore, the increase was 24 percent over 2009.

This begs the following question: What lessons, if any, did Corporate America take from the Great Recession of 2008-2010?

The companies in the Standard & Poor’s 500 (allegedly) employ some of the best and brightest business minds in the country. Retaining executive-level talent is important, but the economy isn’t exactly running like a high-performance engine right now. Cost control and fiscal responsibility, as opposed to overaggressive and short-sighted investment in internal talent, should rule the day. This is not only the proper approach in these still-uncertain economic times, but at all times.

Sports fans like myself hope, pray, and cross our fingers that our favorite teams’ general managers hold strong when faced with the temptation to overpay for players. The highly competitive nature of the sports world puts pressure on organizations to dole out the dollars in an effort to lure and retain talent.

It’s no different in the business world. Most, if not all, U.S. companies suffered greatly as a result of the rampant fiscal irresponsibility of the pre-recession years. Those lean times should have led Corporate America to embrace a more rational approach to running their organizations. Obviously, that hasn’t happened.  So much for a lesson learned.

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