“The More Visible You Are,
The More Money You Make” – Iris Fignuten
by Jim Penn
Business graduate school Professor Ferdinand Von Rumproast had been taught well by Ms. Fignuten in the seventh grade, and her words were ringing in his ears as he opened the lecture. “So, class? How much money do you think I should be paid to teach this class?”
After a long class pause, Linda Ladyfinger ventured, “What any excellent professor should be paid. $20 an hour?”
“Linda, I am overwhelmed by your generosity. Obviously, you think I’m worth an annual salary of $40,000. According to a past Parade Magazine’s annual feature, ‘What People Earn,’ I’d be making $3,000 less than a mason in Kagel Canyon, California and $5,000 less than a physical therapist in Chicago, Illinois.
“Linda, did you base your answer on the principle of supply and demand or what the market will bear, or, perhaps, the value of my services or employee motivation and retention?”
Linda, a political science major, rose to the challenge, “Professor, it was all of those things.”
“Today’s lecture is on compensation and why people are paid what they’re paid.
“A very wise teacher told me many years ago, ‘The more visible you are, the more money you’ll make.’ ‘Visibility’ can mean many things including business success and the enjoyment that a person brings to others and often society as a whole. This would explain why Tiger Woods earns tens of millions as does Julia Roberts, Venus Williams and Martha Stewart. Oprah Winfrey’s annual compensation is off the charts. Oh, I forgot to mention professional athletes like Alex Rodriguez who earns more than $21 million a year. Are they worth it?”
I couldn’t resist and offered, “Yes, maybe and no. Yes, if their compensation achieves the purposes intended, namely, to help win a pennant or sell more tickets and grow an audience. Maybe, if they’re on the way to achieve the goals, and part of their compensation is based upon future expectations. No, if they fail to achieve all of those things.”
The professor looked at me and continued without comment. “At least the principle of supply and demand is at work. Stars in the visible arts are in demand, and superstar status is a limited commodity. It appears that the market will pay this compensation. These individuals touch the lives of many people. Can the same principles translate to the business world?
“When our economy was in a downturn and overassessment of market opportunities and failure by corporate management to make reasonable decisions were prevalent, what happened to executive compensation? Did it followed a prudent theory of compensation? No, a resounding no. Why?
“And today, when our economy appears to be prospering, does the compensation of major company CEOs follow any rational logic or reasonableness, save for a few special circumstances. No. Why?
“Gone are the days when paying a chief executive officer annual compensation of more money than he or she could ever spend in a lifetime was reward enough. Way back in 2000, Proctor and Gamble gave CEO Durk I. Jager a $9.5 million bonus even though he didn’t last a year and half. Jill E. Barad received a $50 million severance package upon her termination from Mattel Inc. Xerox gave G. Richard Thoman, who had been at the helm for only thirteen months $800,000 a year for the rest of his life and similar amounts are awarded, presumably increased for inflation, today. I…”
Linda blurted out, “I’m sure that most of them did their very best and can’t be blamed when the market and the economy are part of the problem.”
The professor continued without responding.
“The CEO is like a conductor, even in the semiconductor industry, heh, heh. He or she is employed to lead the company, the symphony orchestra if you will. The conductor has the responsibility for picking the music and the programs and developing and directing the orchestra to play at its best. If its performances are not well received, the conductor’s compensation may have to be adjusted accordingly because orchestras are primarily supported by the public and major contributors; they don’t have the financial resources that businesses have.
“There is a great responsibility in managing a corporation, particularly one with billions of dollars in revenues and thousands of employees. However, their compensation should be based upon real success and sustainable growth. Recently, Warren Buffet, our current legendary successful entrepreneur and charity contributor, suggested this practice to Coca Cola’s Board of Directors. It’s these corporate executives’ visibility that supports big bucks compensation.
And, here I stand, sweating and laboring very hard to teach future business executives, and Linda, a future successful entrepreneur, only values my services at $20 an hour.
Realizing his time was almost up, he made one last comment.
“After the first $1, $5 or even $12 million of annual compensation, how much more should a CEO or superstar get paid? I leave you with this one question, ‘How much is never enough?’”
The ‘ol professor did it again. What the market will bear must be tempered by the value of current services. Future performance should be compensated when achieved.