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.