Thursday, February 27, 2014

What happens to the rest of us?

According to the Princeton Review a SAT score of the mid to high 500 seems to be the lower range most colleges expect. While the article takes pains to point out that the scores listed in the chart are not “cut off” scores, students with those scores are most likely to be considered.

All tests tend to have three major groupings, a small group with high scores, a large group clumped around the mean, and a group below average.

If the reports are true and education is the key to jobs and financial success in the future, what happens to the large number of people who score below the “minimums” for college admission? If the tests are to be believed at all, those with too low a score will not be able to either get into college or learn the material without which they will not even get interviewed much less hired.

Americans came to expect that most of us could find jobs that paid well enough for us to own our homes, have cars, TV and the rest of the possessions of modern life. Many jobs at the low end to the middle of the pay scale are disappearing as manufacturing and the associated support functions move to lower cost locations outside the US. Where do those displaced workers, and the new workers going into the job market for the first time, at the same level, find new jobs that pay enough to live as we expect them to be able to live?

This matters to you as a business because those are your customers. No job and they don’t buy and it doesn’t matter how inexpensive your product is.

Tuesday, February 11, 2014

Am I nuts or are they?

I just noticed this report at Time Business on my Feedly blog reader:
“General Motors CEO Mary Barra will earn around $14.4 million in cash and stock bonuses in 2014, the company said on Monday, about 60% more than her predecessor made in 2013.”
Read the full article here.
Is there any way that she can add that much value in the next year? The next 5 years? Since GM is a huge company with long lead times for a new product to make it from concept to market there is very little Ms Barra can do that will change GM in the next 12 months so we need to look at her performance over the long term.
The prevailing theory is that the CEO of a company is responsible for the “master plan” that a company follows and is also responsible for how well that plan is executed and should be compensated for success. The theory also postulates that to attract the very best you have to outbid the competition or lose that candidate to someone else. This supposes a limited supply of people with the training, experience and temperament to lead any particular company.
What if that CEO is not unique?
There are 7,000,000,000 people in the world and while the vast majority are not qualified or able to lead big corporations, it’s safe to say that those who are able to lead, represent some small percentage of that seven billion total.
We might argue over what that percentage is, but we can surely agree that more than one person has those skills and abilities; if we theorize a 10 percent number that gives us 7 hundred million potential people who could replace your CEO. If we reduce that to 1% there are 70,000,000 people who could do your CEO’s job.
Suppose that there is only 1 tenth (1/10) of one per cent who could replace that mythical CEO and we still have 7 million replacements.
If any one of 7 million people could do that job, why the heck is it worth anywhere close to what they are paying? Remember in the first paragraph we stipulated that the high levels of compensation were justified by the scarcity of the peculiar skills necessary and the limited number of candidates to draw from.
Those huge CEO salaries and bonuses tend to be from a limited number of really big businesses and the theory is that there are a really limited number of people who are capable of managing at that level. Remember that one tenth of one percent of the population of the world is seven million potential candidates, then we must accept the improbable conclusion that the senior managers of the Fortune 500 represent the top 0.0007% of people in the world.
There is an old saying that “figures don’t lie but liars can figure” but the simple percentages do illustrate an important point. You can’t tell which of the seven million potential business leaders will end up being worth those high compensation packages until after the fact. And, since much of what a CEO does is long range planning you can’t tell until years later.

I submit that executive compensation has grown all out of proportion to their contribution because execution is much more important than planning. As General George Patton said: A good plan implemented aggressively today is better than a perfect plan implemented tomorrow. Leading us to the inevitable conclusion that the people implementing the plan are more valuable to the company than any single leader and you should be compensating your employees based on their value to executing that plan and not on their job title or how easy it is to replace them.