Big Boss Bonus Babies

The New York Times put it all in perspective for me early this summer when it featured the lucrative recruitment [...]

August 1 1997 by Arnie Pollard


The New York Times put it all in perspective for me early this summer when it featured the lucrative recruitment tales of two of AT&T’s rising stars. Each had forsaken highly compensated positions on the company’s executive fast track for CEO roles at smaller outfits, lured in part by near Michael Jordan size (okay, Pat Riley) signing bonuses. This only months after AT&T itself attracted its own (now ex-) heir apparent CEO with a package that includes a $20 million (modest, by Michael Ovitz standards) prenuptial indemnification against the (obviously very real) risk of his not succeeding Bob Allen.

All of which serves to underscore perhaps the most visible-and controversial-change in the CEO role since I was in the early stages of my original day job as a strategy consultant in service to CEOs, and Jimmy Carter was gracing Chief Executive’s first cover. To wit: the pay.

Regarding the facts there is little argument. Chief executive pay is up. Up relative to nearly everything in sight. Up to the point of becoming a political issue and even Business Week questioning the appropriateness of CEO compensation levels. Up-but not up in isolation. The Bulls paid Michael Jordan $30 million last season, and Jerry Seinfeld will get $22 million next season.

Putting aside the very legitimate concern for the consequences of an increasing wealth gap among Americans, I suggest the obvious as relevant: Nobody put a gun to the heads of Teligent’s directors when they included a $20 million signing bonus to recruit Alex Mandl away from AT&T. And that same nobody had a gun to the heads of AT&T’s directors when they offered Jim Walter a $20 million bond. The same can be said for NBC’s offer to Seinfeld and the Bull’s offer to Jordan. And therein lies the story.

Once upon a time-when there were the “Big 8″ accounting firms, the “Big 3″ automobile manufacturers, the “7 Sisters” oil companies, and a huge “command” economy led by something called the Soviet Union-sports and entertainment stars, as well as chief executives, were paid relatively modestly. Hollywood had a “studio system”; baseball had a “reserve clause.” And business had its own relatively closed and comfortable “country club” system. In those days, outsiders like Al Dunlap needn’t have applied for the CEO’s job, there being little external pressure on the board motivating such an uncomfortable option. Surely one of the incumbent’s long-term lieutenants would prove more than adequate-and much more comfortable.

And then… good-bye reserve clause, hello free agency. Hello Honda, good-bye “Big 3.” Hello Boone Pickens, good-bye Gulf Oil. Good-bye Burroughs, hello Intel (and Microsoft). Hello CALPERS, good-bye corporate country club. Hello Al Dunlap, good-bye Scott Paper.

The market for CEOs is today just that-a real marketplace, and it is telling us something. It is reflecting the new realities. Yes, the reward has changed-but so has the risk. Fewer and fewer enterprises escape the severe pressures of global competition. None escape the challenges thrown up by the IT revolution. Nor the “need for speed” in decision making and consequential requirements for a more flexible (“virtual”) organization, decentralized management culture, and non-autocratic leadership style. All CEOs of corporations tapping the market for capital feel unrelenting pressure to maximize shareholder value from a very competitive financial marketplace——as well as a very proactive corporate governance system.

More than ever, the key to corporate success is top management talent. Caretaker CEOs need not apply. The chief executive role has evolved from the ultimate executive reward…to the ultimate executive challenge.


Arnie Pollard is chief executive of Chief Executive.