CEO pay. Would you take this job for $12 million a year?

Chief Executive Officer, Whirlpool Corporation

Jeff Fettig

Jeff Fettig

Whirlpool C.E.O. Jeff Fettig took a cut in pay last year and only made $12 million. A pittance compared with Oracle’s Larry Ellison who topped the list of overpaid C.E.O.’s at $74 million. Now, I don’t want to pick on Fettig. He’s a fine executive. I chose him for this example, to make a point of how our Fortune 500 executives get compensated because I used to work for Whirlpool, and Fettig’s Directors at Whirlpool don’t just pull these numbers out of a hat when deciding how much to pay their C.E.O.

Bear in mind that Directors are selected by the C.E.O., yet they get to set his or her salary. One way they calculate compensation is by using a peer-group benchmark that looks at executive pay at comparable companies. The theory is if they don’t pay Jeff what he could get at a competitor, he’ll jump ship. However, according to an article in Sunday’s NY Times there is new research that shows this is simply not the case. In Fettig’s case there are only 2 pure play competitors in the appliance industry that would fit: Sweden’s Electrolux and Germany’s BSH. Possible, but highly improbable that a Yank would work out in either of these firms. Even so, it would be a downward move for Mr. Fettig as these are smaller firms than Whirlpool.

More to the point, the study’s author, Charles Elson says, peer-group benchmarks are “a false paradox…based on the transferability of talent. But we found that C.E.O. skills are very firm-specific. C.E.O.’s don’t move very often, but when they do, they’re flops.” Again, looking at Whirlpool, C.E.O. Jeff Fettig is 55 and has spent his entire career at Whirlpool. He’s a great fit there – but probably a lousy choice nearly anyplace else.

In Japan a C.E.O. might earn 30-40 times what an entry level employee gets. Transferring that to the U.S. we see that Fettig doesn’t get 50 times or even 100 times, but more than 200 times what a young sales rep might get, $50K. Here’s my point: Executive compensation in our major publicly held companies is completely out of control. Fettig would work just as hard and do just as good a job at a salary of a couple of million as he does at 12 million.

Agree? Disagree? Post your comments.

This entry was posted in Business and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s