CEO Daily Brief – Nov. 15, 2010
November 15 2010 by ChiefExecutive.net
What to Do When Half a Company Is Not Profitable
CEOs are well aware that the global recession hurt earnings at plenty of companies, but according to profitability guru and M.I.T. senior lecturer Jonathan L.S. Byrnes, the downturn has masked an even deeper problem: Most businesses are still operating the same way they did in the “age of mass markets,” which Byrnes believes ended about 10 years ago.
In his new book, Byrnes recommends how to thrive in what he calls the “Age of Precision Markets,” an era ushered in by Internet-empowered consumers and fraught with changes.
In companies which are still clinging to mass-market thinking, it’s possible for everyone to meet their targets and still be stuck with huge chunks of business — often as much as 40 percent of the whole enterprise — that are “unprofitable by any measure,” Byrnes says.
He recommends using an accounting system Byrnes calls profit mapping, designed to help managers pinpoint precisely which products, and which customers, are profitable and which aren’t. Another issue to resolve is how to pay salespeople. “If all revenues are not equally profitable, and some are not profitable at all, why do virtually all sales compensation systems treat all revenues as equally desirable,” he asks. Instead, Byrnes recommends encouraging and rewarding the profitable sales you really want and phase out the less lucrative ones you don’t.
At companies that have tried out his system, Byrnes says, sales have jumped by as much as 35 percent and profits by 50 percent or more. For more from Fortune magazine, please click here.
Free Trade Would Help U.S. Companies: Wharton Professor
U.S. CEOs want to make sure that their goods can find a market overseas. How should they stand on free trade issues? Recently, President Obama said he wants to make the case for more American imports to Asian markets. What will he need to do to persuade these countries to open their doors to U.S. goods and services, especially if the dollar goes up? Wharton business school professor Jeremy Siegel says the key is to see fewer trade restrictions on both sides. He is not in favor of what the U.S. House of Representatives has done, in trying to close down on China, or threaten China. Free trade should go both ways, he says.
But even if the other countries don’t respond it’s still harmful for America to take a position of, “If you’re not going to allow our goods, we won’t allow your goods.” The allowance of goods into our country is a big positive for the United States and world trade, and will ultimately lead to more demand for U.S. products abroad, according to Siegel. For more comments about other business issues now before Congress, in this post-election period, from Knowledge@Wharton, please click here.
Compensation of 30 Private-College Presidents Topped $1 Million in 2008
The almost zealous focus on top administrator salaries has now switched to private universities. Though this year’s list of top earners included the presidents of some of the country’s wealthiest research institutions, such as Vanderbilt, Columbia, and Yale universities, many other of the highest earners came from smaller colleges.
According to the Chronicle of Higher Education, a review of federal tax documents from the 2008-9 fiscal year, found 30 private college leaders who received more than $1million in total compensation. In the previous year’s report, 23 chief executives earned over $1million.
Like with CEO salaries in the private sector, often gross numbers do not tell the whole story. For example, the top earners included presidents who received large payouts when they stepped down. John R. Brazil, who retired in January as president of Trinity University, in Texas, was the second-highest earner during 2008, receiving $2,777,653 in total compensation. More than $2-million of that amount included payout and interest on deferred compensation.
The highest-paid sitting president was R. Gerald Turner, of Southern Methodist University, who earned $2,774,000 in total compensation. According to the university, Turner’s compensation was unusually high because he cashed out a life-insurance policy and bought his own policy, which accounted for $1.5-million of his total pay.
And nearly four decades after Bernard Lander founded Touro College with a class of 35 students, the trustees decided, based on a consultant’s report, that he had been underpaid during his tenure as president. To make up for the difference, they awarded him more than $4-million in deferred compensation in 2008. Lander, who died in February at age 94, received a total compensation package of $4,786,830, making him the highest-earning private-college president.
For more from the Chronicle of Higher Education, please click here.