CEO PAY: THE ICEBERG EFFECTTo the Editor:The exchange of viewpoints in the compensation roundtable [" CEOs Can Resolve The Row [...]
April 1 1992 by Chief Executive
CEO PAY: THE ICEBERG EFFECT
To the Editor:
The exchange of viewpoints in the compensation roundtable [" CEOs Can Resolve The Row Over CEO Pay," January/February 1992] was most interesting. However, two very basic points were not even mentioned, namely, calculation of the “real” or “naked” contribution of the CEO to company performance-however measured-and whether money is really the prime motivator.
The CEO is only the top of the iceberg. What’s below, good or bad, largely determines company performance. In most cases, the iceberg is a structure that has been in place for years before the CEO climbed up through it to the top. Once there, sure, he can influence some significant changes in direction, structure, and personnel, but the company performance is still largely the product of the whole. Moreover, the CEO is expected to do such leadership things. That’s what the job is all about. He is not there to be a figurehead or to rest on the laurels garnered from years of battles to get that top job. So why extraordinary salary treatment for this position? To motivate? Nonsense. The reason that competent, hard-working, principled individuals want the job is not money. It is power, prestige, perks, and the deep satisfaction that comes from recognized achievement.
CEO pay should thus be an integral part of a continuum salary structure for the whole iceberg. The bottom is anchored to market rates for entering professionals; the top is capped at 20 times the anchor rate, plus or minus 50 percent depending on the size or nature of the business. Performance over and above what’s expected should be judged excluding outside effects such as political bombs, oil embargoes, and the like. Merited recognition should be in cash bonuses, not stock, and reach down the iceberg as appropriate.
A plausible and simple salary structure based on these principles can be readily generated by drawing a straight line on a semilogarithmic chart, starting with the anchor entering salary at position 1, and terminating at the top, 20 times that salary, at position 10. On this chart, salary is on the logarithmic scale, and the position numbers are on the arithmetic scale.
KATIE’S BEST, CATO’S WORST
To the Editor:
I am writing, somewhat belatedly, in response to your article by Sid Cato, which cited Mesa Limited Partnership’s 1990 annual report as among the nation’s 10 worst ["The 10 Best Annual Reports of 1990 . . . And The 10 Worst," October 1991].
I thought you would be interested in learning that our report recently won top honors in the annual report category of the Dallas Press Club’s “Katie Awards.” Judges in the contest awarded the Katie to Mesa for the clear and concise writing in the report. We’re proud of that award. Our report is written for our shareholders, not self-styled annual report critics.
Frankly, I have long heard of Mr. Cato’s interest in annual reports. That’s why, immediately after the publication of our report last spring, I forwarded a copy to Mr. Cato and, in a personal cover letter, sought his comments. Imagine my surprise when I received his response-in the pages of your magazine. What’s more, in a call to Mr. Cato after the publication of his article, I was offered a subscription to his annual report newsletter. Perhaps Mr. Cato’s future annual report critiques should be classified and promoted as advertorial rather than editorial.
I find fault with Mr. Cato’s evaluation on many points. For example, we’re downgraded for not providing biographical information on our directors. We never have, and never will. We do not 4 view our annual report as an ego-building exercise for our directors or officers.
Mesa Limited Partnerships
Sid Cato replies: Did Mr. Rosser think he engaged our services? Of course not, since our longstanding policy would compel Sid Cato Communications to return a fee on finding a client report among the 10 best or worst. We would not have agreed, under any circumstances, to keep private our observations.
Missing from Mesa’s report: graphs that are captioned; and financial data for even six years, let alone the preferred 11.
Also missing: a grid to provide clarity concerning the company’s composition; a mission statement or a glossary of terms. The Mesa report didn’t present a clearly stated, tautly executed theme. The report’s letter to shareholders, as noted in our October compilation, similarly lacked forthrightness. The report was neither attractive nor compelling reading.
These are all negatives, as was our overwhelming view of the report, the Dallas Press Club in all its wisdom notwithstanding.