Sunday, May 31, 2009

Pay and circumstance. Uproar over bonuses and other compensation for bailed out financial firms, including AIG and Merrill (Bank of America), have prompted a public debate -- exactly what should business folks be paid? More specifically the public discussion has focused on Edward Liddy, the former interim head of AIG. (disclaimer, I am a Liddy fan, and not only because he earned his MBA from George Washington University).

Since some Congress members have suggested executive pay should mirror that of the US President, interest in Presidential pay has also emerged, prompting the business news channel Bloomberg TV to ask, what does it mean to be "Paid like the President?"

I estimated for Bloomberg that the overall direct and indirect compensation for the US President was between US$17 and 24 million (see the entire clip here

I calculated our figure not based on US government figures, although the guided us in several cases, but based on what it would cost someone in the private sector. For example, the cost of hiring a private jet from DC to Chicago costs between $US24K and 60K, but the president travels with 18 people which means he needs two. In another case, we figured the current Real Estate costs in downtown DC was about $32 per square foot, we learned the White House is about 55,000 sq. ft, the Oval Office is 800 sq. ft. You get the idea of how we arrived at this range without me putting you to sleep with a line by line estimate. 

Back to Liddy who was grilled by Congress and made the straw man for the overpaid executive. In my view, this tag is completely off the mark. Liddy, a retired insurance executive, answered the call to public service when the government asked him to pick up the pieces for the failing insurance giant. 

Liddy's pay = US$1.

Your read that right 100 cents. Liddy answered the call, yet became the stomping ground for congressional (very public) outrage over executive bonuses when he approved the executive bonuses (Liddy did not receive any pay, let alone a bonus). With thanks like this, no doubt it will be difficult to find a replacement. Indeed, it may be that Liddy found his job more difficult than he imagined. AIG was more a mess than anyone knew and the complicated financial and organizational structure made things almost unmanagable in my estimation. 

The final analysis is not whether Liddy should be paid $17 million or whether Congressman should receive $1, both of these figures are probably the wrong ones to use. It does suggest however, that public service is different from private sector work, each entails a certain set of responsibilities and each has mechanisms for motivating differently. In my estimation, government imposed salary caps make about as much sense as government sponsored bailouts, but in times like these, sense is not always what gets us moving forward.

Wednesday, May 20, 2009

Leadership more important than $$

Leadership is more important than money, that is what a recent survey of Federal employees found. Not surprising, we have known for years, or at least argued for years, that money was a pretty lousy motivator. The study, conducted by the Office of Personnel Management, jives (that is the technical term) with what other studies showed, that people are likely to leave their job because of their boss, not the benjamin (that means $$, my aim is to educate). 

The notion that money doesn't serve as a primary motivator is not new, yet organizations continually use money (salary, stock options, other financial incentives) as a primary source of motivation. There may be a reason for this, some studies show that what is important is relative pay. In other words, perceived external equity the primary factors employees consider when looking for a new job or considering whether they want to move to another job. 

The debate seems to be more than just theoretical (or in this case survey hypothetical), as investment banking firm Morgan Stanley recently revamped its compensation methods in anticipation of new guidelines from the TARP monitors. (see Financial Times article at

So this takes us back to the original issue, yes money may play a part in motivating employees, but smack (eg$$) and pay are only relative considerations. What seems to be more important is leadership and how you compare to others. Once again, we see that basic psychology tends to trump economics in explaining human behavior!

Here is a link to the original article that appeared in the Washington Post

Thursday, May 14, 2009

Leadership, learning and organizations, that is the topic of this blog. I hope to begin a dialogue on important developments, theories, ideas, practices and events that relate to leadership, learning and organizations.

An interesting news item to get this thing rolling:

A recent headline noted that "Sergio Marchionne: Fiat chief with a can-do attitude"

Marchionne is an interesting figure in leadership. He turned around Fiat and is now seeking to create the 2nd largest auto company by buying Chrysler (US) and possibly Opel (a piece of GM's Europe business). The real question is whether he is an excellent manager or excellent at getting government financing to save companies (it may take both skills to turn Chrysler around).
Marchionne may be on to something. Under his leadership Fiat seems to be leading the way in Europe. His new thinking for the 'old world' put Fiat (up 4.7%), along with Hyundai(up 9.7%), as the only two car companies to see sales increase in April 2009 (source WSJ). Is he another Carlos Goshn, the turn around leader at Nissan? I just hope I can finally buy (an affordable) Alpha Romeo in the US, even if it has a Chrysler name plate. My preferences aside, while it's hard to guess American preferences for the likes of small cars by Fiat, it wasn't long ago that another Italian manufacturer took over a US name plate. No, I'm not talking about Illy coffee. The US military no longer carry Smith and Wesson side arms, they carry the (Southern Maryland made) Berretta!