![]() But I know the current system is asinine, and that as recently as fifty years ago, we didn’t have it. Unlike most of my complaints, I don’t come to this one with a proposal. If they lose, well, it wasn’t exactly going gangbusters before they showed up, now was it? If they win, they’re not only paid huge bonuses by this corporation, but they get an even better deal-they’re a “proven winner”!-at their next gig. It’s known as Goodhart’s Law.įor big corporations, we’ve set up incentive structures that, often as not, encourage leaders at middling or failing companies to take big, risky bets. In fact, no matter what you choose, there’ll be a way for me to game the system to maximize benefit for myself in a way that, at best, only coincidentally helps the business, and at worst utterly destroys it. Number of jobs done? I encourage salespeople to close multiple small jobs, leaving big-job revenue on the table. Gross revenue? I underbid all our competitors, cutting profit margins to nearly zero, and leaving no margin for customer satisfaction, R&D, or a rainy-day fund. Profits? I underfund replacement tool programs and tell folks to use worn-out bits and blades a bit longer, cut back on sales staff and coast on their existing bookings for as long as I can, and cancel holiday bonuses and skimp on the yearly raises. ![]() Let’s say I’m the new CEO you hired for your old business, and you’ve told me I get paid $100k base, and up to another $500k based on how I grow the business in the next year. Now, once ownership drops below 1% or so, the incentives become very different. You’re spot-on, in part because your experience is that of a majority, or at least substantial minority, shareholder. Had we taken one or more of the businesses public – with I or others being a CEO answering to a BOD, with Wall Street analysts looking over our shoulders – it might have been different. But we were either building equity in our businesses or trying to keep the folks who were actually making us money (the plumbers, carpenters, mechanics et al) gainfully employed. Our wives would sometimes remark that they might have been wealthier had they married a plumber or carpenter. During downturns and times when we were struggling to grow our businesses – my partners and I often took less salary than our lead carpenters or boss plumbers. In a small business that is not always the case. ![]() What is really misplaced is that many in top management seem to be immune to business downturns and their salaries and bonuses may not reflect how well the business has performed. The huge disparity in some corporations seems misplaced. I understand the pyramid structure of most corporations and expect that CEOs will earn more than the officers reporting to them – and son on down the line. The RA1141 does not accept any template guidesĬommon 2-1/2 in.I find some of the US corporate culture hard to understand.
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