There has been a lot of talk about creative destruction because of Mr Romney. In a capitalist society profits and sales are important but today so are people. Companies are going to declare bankruptcy and as a result realign operations to become competitive but when people are fired and rehired at a lower wage and companies are leveraged to the hilt to benefit investors there is something wrong.
There is no such thing as job security today that is quickly becoming understood. CEO’s who lack management expertise find it very easy to lay off people to improve the balance sheet. However this is shortsighted and only provides a short term fix while possibly damaging the organization strategically. Companies that lay off people often suffer from a decline in employee moral which in turns leads to lower productivity. In the end shareholders can loose valuable equity in the company they own.
The business environment today is rapidly going through a transformation. Consumers, who drive the economy, are not willing to buy things they don’t need and want brands to be responsive to their needs. At the same time companies needs to transform the way they market their products and get closer to their customers so they can listen better and engage them in meaningful conversation. As part of this process companies also need to continually revamp processes and the responsibilities of employees. They need to eliminate processes that are unnecessary and do nothing to add value to their products and brands.
While the recession has changed consumer behavior permanently one thing that still remains a challenge is the compensation of CEO’s. While CEO compensation took a mild dip a couple of years ago we are now reading that executives are taking home tens of millions of dollars in salary and perks. Tim Cook, for example, the CEO of Apple took home over $380 million in salary. Sure Apple is a great brand and their stock price is doing well but $380 million ? Most people cannot imagine what it would be like to take home that kind of money.
What bothers so many people and employees today is that while people’s lives are destroyed via pink slips executives continue to get well rewarded and have a LOT of executive perks. How can a CEO who just laid off 3,000 people possibly justify three corporate jets and a $10 million bonus ? Personally I believe that every effort should be made to cut expenses before laying off people including the sale of corporate jets and an elimination of some CEO perks.
Just three years after the financial crisis generated widespread public outrage that Wall Street chief executives walked away with hundreds of millions in bonuses and other compensation after driving their companies into insolvency and plunging the nation’s economy into crisis, multimillion-dollar pay for failure is flourishing like never before.
It’s a great irony that spectacular failure is rewarded lavishly,” John J. Donohue, a professor at Stanford law school and the president of the American Law and Economics Association, told me. “It is a terrible mistake to set up a structure where the top person walks away with millions even if the company is laid waste by their poor decision-making, yet this is what’s happening. It’s a shocking departure from capitalist incentives if you lavish riches on the losers.”
Most people strive to better their circumstances by taking chances, often changing jobs without any guarantees that should they fail, they’ll be paid anything — let alone lavishly. That is the essence of capitalism. “Imagine if you were applying for a job, and you said, ‘I want to make it clear that if I do a terrible job, I want to walk away with a ton of money.’ Do you think you’d get hired? Yet that’s now standard practice in negotiating executive compensation.”
If you want your company to succeed treat your employees better than your customers and make them part of the solution via employee empowerment. CEO’s deserve to be compensated well but there comes a time when you have to ask “how much is enough ?” When we succeed as a company employees want to be recognized and when we fail as company we all want to eat a slice of the mud pie. Yes, sometimes creative destruction is necessary but don’t tell me I have to eat dirt when others are eating filet.
