CEOS SHOULD NOT GET PAID FOR INCOMPETENCE

CEOS SHOULD NOT GET PAID FOR INCOMPETENCE

Matt HealeySunday,16 December 2012

The Snap:

I saw an article on pay for bad managers. Generally failing at your job limited your future opportunities. Because of this, you have to think before accepting a new job. But, there are two jobs that you should always take if they are offered to you. They are CEO and head coach for an NFL team. The first reason that you should take either of these jobs, if you are offered them, is that they come with a ton of money. The second is that even if you suck, and drive the company or team into the ground, then you will get another higher paying job.

The Download:

CEO is clearly a hard job. Have a ton of responsibility and get skewered in the press. The travel demands, customer meetings, investor calls, etc. all result in extreme stress. Most people can not handle it. This makes finding a good CEO for a large company hard. Very hard. The same is true for head coach in the NFL. This leads to companies and teams looking for a leader who has experience. After all, if they have done the job before, then they are more likely to be successful. Or so the thinking goes.

The problem is, what happens if the person demonstrated that they could not do the job? In my mind that should disqualify them from consideration. But for some reason, many corporate boards and GMs don’t tend to agree. So they go with the experienced CEO. As exhibit 1, I point to arguably the worst board in the tech sector, the HP board. This board’s greatest hits include the pretexting scandal of 2006, the epic public battle associated with the Compaq acquisition, and the ineptly handled dismissal of Mark Hurd. Given this resume, is it surprising that HP chose Leo Apotheker as the CEO to replace Hurd. Leo is the former CEO of SAP. Under his reign, SAP showed a lack of innovation and competitiveness in the market. Having been a tech analyst at that time, I was routinely more impressed with what Oracle was doing than SAP. Finally, SAP relented and chose to non-renew his contract as a member of the executive board, and allowed him to resign as CEO in 2010. In my world that would be the end, but no, because he now had “experience” as a CEO, the HP board made him their new CEO. During his 10-month tenure, HP lost $30 billion in market cap. For that, HP paid him $13 million in salary, $7.2 million in severance, $3.56 million in stock and, wait for it… a performance bonus of $2.4 million. One has to wonder what the performance metrics were that enabled him to achieve a performance bonus while simultaneously driving the company into the ground.

The other example is head coach in the NFL. The example here is Herm Edwards. He is the former coach of the New York Jets. He was responsible for running that team into the ground. Granted, that is not hard. After all, they are the J.E.T.S – Just End The Season. Once again, in my world this would be the end, but wait, the Kansas City Chiefs went out and hired him as head coach. Guess what happened? He drove that team into the ground. CEO and head coach. Even if you fail, you will get another chance, and in the case of CEO, you will likely get more money. If you need to find a senior person, do not hire people with a track record of failure, and don’t agree to pay them if they prove to be incompetent.

Hat Tips:

LeoHP pretextingHP Compaq mergerHP Mark Hurd issueHerm Edwards, Image Credit: Wikimedia Commons

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