Paul Jackson sums up the thinking of most respondents to this month's column with the comment, " . . . nothing about CEO compensation seems to be 'efficient.'" Brad Millet adds, "The CEO market for mega-organizations operates in a synthetic universe—one that differs largely by scale alone."
Several respondents offered an explanation for these phenomena. Typical was Rahul Sharma's comment: " . . . these high executive compensation packages are . . . necessitated by the reduced 'lifespans' of chief executives." As Tom Klopack put it, "The price of a CEO for a company seems to run on a scale based on size. The ultimate problem with that is the large failure effect. . . ." Responding to the point that hiring from outside an organization is often a more expensive solution, Balaji Iyengar points out that " . . . in most cases, an external CEO is probably the 'easiest, politically correct' option . . . where there would typically be two or three close [internal] contenders for the top job."
A number of ways of meeting these challenges were suggested. Klopack's was: "Large companies may want to look for talent among CEOs in smaller companies who are used to accountability." Stever Robbins commented, "Why do we even spend our time debating whether a Fortune 500 CEO is 'worth it'? Why, instead, don't we seek to hire people who are so motivated to want the job that they don't NEED a nine-figure inducement to consider showing up for work?" Bill Bittner observed that, "Those boards that recognize the need for change early can use the existing talent to make it happen, and save both money and careers." Anshu Vats said, " . . . unless we can transform the way the market works to bring shareholders into a more active participative role, CEO compensation along with other governance challenges such as agency issues will continue to plague companies." Julie Dotson-Shaffer put it most succinctly: "Every contract should be a 'win-or-go-home.' Losing should feel like losing to the leader. . . . If they do not generate wins for the team, a CEO should get what the rest of us get when we don't deliver: nothing."
These suggestions leave us with some interesting questions. Can effective leaders of small organizations be considered as part of the talent pool for mega-organization CEO positions? Is there something about the need for high compensation and the "score keeping" that goes with it that distinguishes desirable CEO candidates from others? Can (or should) ways be found to involve shareholders more actively in the process of CEO succession? To what extent and how should boards be held accountable for failing to foster "bench strength" that would obviate the need for hiring CEOs from the outside? To what extent, if at all, can markets for CEOs be made more efficient? What do you think? 