Rewarding the MVPs of the Business World
By Elan Journo (Hartford Courant, Jan. 23, 2006; Atlanta Journal Constitution, Jan. 26, 2006)
As millions of Americans watch the New England Patriots take on the Philadelphia Eagles, every minute of the game will be scrutinized, with slow-motion replays and a torrent of statistics. But, amid the cheers and groans, don’t expect to hear complaints from fans about the players' multi-million dollar salaries--$5.4 million on average for starting quarterbacks, and far more to exceptional players. Fans know just what the players had to accomplish to reach the Super Bowl and recognize that the players have earned their pay, that the MVPs are indispensable to their teams, that it is morally proper to reward achievement.
But that spirit of justice disappears by springtime, when corporations file their financial statements. It is then that we learn how much America's CEOs got paid last year. In a ritual now sadly as commonplace as Super Bowl parties, CEOs are annually reviled as overpaid fat-cats. The 25 highest-paid CEOs in 2003 earned an average of $32.7 million--and there were a good number whose compensation packages approached the $100 million mark. Astonished to learn that what an average worker earns in a year, some CEOs earn in less than a week--some people ask themselves: "How can the work of a corporate paper-pusher be worth so many millions of dollars?"
The answer is that successful CEOs are as indispensable to their companies as Super Bowl-winning quarterbacks are to their teams. They earn their rewards.
How big an influence can one man have on the fortunes of an entire corporation? Consider the impact of Jack Welch on General Electric. Before his tenure as CEO, the company was a bloated giant, floundering under its own weight. Splintered into dozens of distinct and inefficient business units, GE was scarcely making a profit. Welch turned it around. He streamlined and reorganized the company's operations and implemented a sound business strategy yielding more than $400 billion worth of shareholder wealth.
In business, as in football, success requires long-range thinking. But CEOs must project a game plan in terms not merely of a single game or season, but of years and decades. A biotechnology company, for example, may spend 15 years and billions of dollars developing a new cancer-fighting medicine. Success is impossible without the business acumen of its CEO. For years before a marketable product exists, he must raise sufficient capital to sustain the research. What long-term business model will attract venture capital? Should the company accept partial short-term sponsorship from a large drug manufacturer in exchange for a modest royalty on the drug in the future--or risk going it alone and possibly running out of funds? It is on such decisions that a company's success is made--and lives of cancer patients may depend.
In order to be successful in the long range, the CEO's strategy must encompass countless factors. He must devise a game plan to grow the business in the face of competitors, not only from its own league, but from all the leagues around the world. The CEO calls the plays, but for a team of tens (and sometimes hundreds) of thousands of workers. Every action of every employee and every aspect of the business must be coordinated and integrated to produce the cars, computers or CAT scanners that yield profits to the company. It is the CEO who is responsible for that integration.
To successfully steer a corporation across the span of years by integrating its strengths for the purpose of creating wealth, requires from the CEO exceptional thought and judgment. Excellent CEOs are as rare as NFL-caliber quarterbacks. And in the business world, every day is the Super Bowl. There is no off-season or respite from the need to perform at one's peak.
Given the effect a CEO can have on a company's success, we can understand why their compensation packages can be so high. One way employers (like team owners) reward excellence is through bonuses. For many CEOs, bonuses amount to a large portion of their earnings. And as with quarterbacks, the CEO's pay package is calculated with an eye on the competition. Companies pay millions of dollars to a valuable CEO, one who they judge will produce wealth for the shareholders, in part so he will not be hired away by a competitor.
Americans can see with their own eyes the merits of star quarterbacks. Though the efforts of CEOs are not televised to the whole nation on a Sunday afternoon, their achievements are just as real and have a profound benefit to all our lives. Just as we admire a quarterback's athletic prowess and understand the importance of rewarding him accordingly; so we should learn to appreciate the work of successful CEOs and recognize that they too deserve every penny of their salaries.
Elan Journo is a resident fellow at the Ayn Rand Institute, focusing on foreign policy. The Institute promotes Objectivism, the philosophy of Ayn Rand--author of Atlas Shrugged and The Fountainhead.
For more articles by Elan Journo, and his bio, click here.