Ann skeet (@LeaderEthics) is the Senior Director of Leadership Ethics at Markkula Center for Applied Ethics At Santa Clara University. The views are their own.
Seeing the topic of money returning to the headlines may seem like a sign of a return to pre-pandemic normalcy. In the past few weeks, business reports have included what is ongoing Stratospheric salaries for CEOsa slight increase in Ransomware incidentsAnd confirmation The wealthy do not pay an equal share of income taxes Compared to the rest of us.
While the fascination with money has become commonplace, money-related behavior is changing, signaling a shift in cultural norms that often heralds updated ethics.
“CEO pay rose in a year filled with turmoil and leadership challenges,” one April 2021 report said. Wall Street Journal the address. Nothing new here. the conditionHowever, it reveals the changing tides. One corporate pay consultant quotes that more investors are voting against corporate pay practices. “I don’t think we’ve ever seen anything like this before in terms of the number of changes we’ve seen in incentive plans.”
This month The Wall Street Journal’s annual ranking of CEO pay He reported on a stock-linked pay raise for GE CEO Larry Culp, explaining how that could happen in the middle of a pandemic:
“Most CEO compensation packages are mostly restricted stock or stock options, as boards continue to emphasize pay structures that aim to tie executive pay to overall shareholder wealth. As a result, as stock prices rise, pay packages can swell to as much as It’s even further from the reported numbers: GE CEO Larry Culp received stock grants in 2020 that were originally worth about $57 million. That rose to $100 million by the end of the year.
General Electric Mr. Culp will not receive any of his August stock grant until 2024, but only if performance targets are met, he said. The first of these goals was achieved in December and the second was achieved in May.
My point is not about this CEO, it’s about this interpretation. The value of Mr. Culp’s stock grants ballooned only Because he achieved certain goals. Had he not achieved what we might conclude were “stretch” goals, he would not have received $100 million worth of stock in the year we suffered a global pandemic. He would have done it only He earned $57 million. fifty. seven. million. At the very least, GE has made it clear that Culp will have to wait four years before raising the $100 million. This is in the company’s compensation committee and we will return to the committees soon.
If you’re not asking yourself, “What does one person do in a $57 million year?” You are not asking the right question. This is the question that history will ask.
History will want to know the multiples of C-suite pay compared to the pay of front-line employees that corporate finance types have been complaining about since the passage of Dodd-Frank.
Just as our children will tell their children stories about us that begin, “They ate meat in those days,” they will also talk about the obscene amounts of money paid to people who dared to call themselves leaders.
Anyone who has ever been qualified to earn $57 million in one year knows this: CEOs who make $57 million a year are not leaders. No one follows someone that far ahead, even with an inspiring mission statement and the most precise KPIs. The widening gap between executive pay and front-line pay means that employees now pretty much do whatever they want to do, rationalizing those choices by pointing to exotic executive pay. There is no team. This is a problem because there are no leaders without followers. And “no leaders” is what we have in 2021.
No leader has effectively prepared for cybersecurity breaches that wipe out entire regions of the country (see Colonial Pipeline), or food supply chains (JBS). No leader has directed adequate funding to the IRS to audit and collect taxes. Certainly there have been no leaders who have figured out whether the federal tax code equally addresses every person’s right to liberty and the pursuit of happiness. No leaders can figure out how to protect us from ransomware attacks.
People follow selfless people, people who put the interests of the “team” first. We follow the people who participate. CEOs claim they got the memo that we engage with things like climate change and global pandemics by embracing stakeholder capitalism and ESG goals. However, change begins at home, or more specifically, with the individual.
It’s been five years since we started talking and writing about the Yates Memorandum, a Justice Department policy update that places more burden on personal liability in corporate settings. Since its publication, the lack of individual accountability, hidden behind collective decision-making in board committees (see Wells Fargo), or corporate self-regulation (see Boeing), persists. If collective decision making led to more positive outcomes for the collective public good, I might be less interested in seeing some updated methods used in corporate boards to generate truly new thinking.
Let’s hope Attorney General Merrick Garland uses the Yates memo as a cudgel to accompany the ESG islands. If corporate CEOs want to become leaders of stakeholder capitalism, they have to learn to engage, and they have to be where the buck stops.