When we give a key employee a 2% raise and the CEO a 25% raise, aren’t we building in employee dissatisfaction and maybe even a culture of unfairness and haven’t we just CREATED a risk to the organization? While we’re all focused on Executive Pay in the Comp Committee, shouldn’t we also be focused on how the employees are being compensated and if it’s fair, especially in relation to Executive compensation? The distance between a 2% increase and a 25% increase is material and not unnoticed by the employees. I have heard from two key employees this past week that they have no incentive to work harder, or even as hard as they’ve been working. They now know they won’t be compensated for their efforts or results so they’re figuring out to work less and therefore improve their quality of life by having more time. When these decisions are being made about employee compensation in the organization, are we, as directors, aware of the unintended consequences of our decisions throughout the organization? We’ve just been through a very difficult time when employees were asked to work harder/longer for no additional pay, or in some cases for less pay. Now we generously reward the CEO and not recognize the employees? What is the message we just sent to every employee in the organization? And doesn’t that create an extraordinary level of risk?
Working through strategies, including crisis planning, can use video games and Avatars to work through the roles of the key participants, the variations in decisions and results, and the experience of the key participants working together, even if they’re on different continents. What a valuable use of technology!! I will have more on changing uses of technology.
This was discussed today at the Women Corporte Directors Global Institute.
Two stories concerning federal investigations hit the news this week. The New York Times outlined in detail Walmart’s alleged actions after being notified by a former executive at Walmart’s largest foreign subsidiary, Wal-Mart de Mexico, of rampant and widespread bribery with payments totaling more than $24 million. The allegations state that the then CEO, now board member, H. Lee Scott, Jr effectively shut down the investigation in 2005 and Wal-Mart de Mexico CEO, Eduardo Castro-Wright, who is alleged to be central to the bribery, was promoted.
In a very different situation, a Hartford-based non-profit, CRT, with $100 million in revenue from a variety of government grants, was raided by 55 agents representing four federal agencies: Health & Human Services, VA, Energy, and HUD. The Hartford Courant had questioned in Feb why the former CEO has been receiving $85,000+ since 1985 for unspecified work from his Florida home, where he is a resident. The CRT Chief Operating Officer, a former Army Major, was fired in 2012 and she wrote to the board claiming she was fired in retaliation for cooperating with state auditors, who started an investigation in 2011. The board chair has denied those allegations in a letter to the Hartford Courant stating, “nothing more than the views of a disgruntled former employee who resigned after confirming she had taken inappropriate action…” Other whistleblower complaints allege that federal funds were improperly diverted. After a year long state investigation, being raided by 55 government agents suggests major criminal wrongdoing.
What do these two have in common? In both cases the people at the top did not take seriously the “whistleblower” information they were given. They chose not to act on information given them by high-ranking executives and we’re seeing the results.
I co-authored the award-winning, Board Leadership for the Company in Crisis (www.hopgoodgroup.com). The very first step is to determine if the CEO and or Chair are part of the problem or part of the solution. In both of these cases, it might be a very good place to start. Another good reminder is when someone says, “You have the right to remain silent. Anything you say can and will be held against you.” it’s a really good time to listen and call a criminal defense lawyer. They really mean it. The board should now be asking for all information the CEO/Chair received and should be asking what other employee complaints have been made. A serious issue for both companies is what has happened to the culture in the company as employees have witnessed wrongdoing a the top. The Tone at the Top ripples throughout the organization. All employees will be watching the next steps in both organizations. Those actions will define the culture for many years to come.
A VP friend at a F-200 company just had his review: Great job, valuable employee, greater responsibilities, very pleased with having solved major customer dissatisfaction issues …….. 2% raise. The CEO is getting a 25% raise. My friend voted against Exec Comp and Say On Pay. I think this is worth paying attention to as board members and Comp Committee members. He has effectively lost ground the past five years with his raises not keeping pace with inflation in spite of being a highly valued IT employee, while he has seen the CEO pay skyrocket…… And therein lies the widening income gap issue.
We also talked about the relationship bond that previously existed between employees and companies that doesn’t any more for exactly these reasons. Is this good for companies? For consumer products companies, what is the cost of a work force with low morale who keep losing ground? Aren’t they conveying that low morale to the customer rather than an enthusiasm and excitement about their job & their employer? When we encounter employees “who don’t care”, aren’t we really saying we’ve encountered a COMPANY that doesn’t care about their employees and that attitude has rippled down to the employees and now to the customer? Isn’t that why we love eating at some restaurants with really good food and and not others with equally as good food? Are we thinking about the cost of this income gap to the company and to the future of the company?
Wyckoff Heights Medical Center in Brooklyn, NY has experienced interesting interpretations/actions of Duty of Loyalty and Duty of Care from the board.
One member of the hospital’s board obtained for the pharmacy that he owned the exclusive right to market prescription drugs to hospital patients. Mr. Goffner had three conflicts, more than any board member. He had the exclusive contract to dispense drugs. And Mr. Goffner was the landlord of a building being rented by the hospital. In the recent shakeup at the hospital that led to the ouster of Mr. Garg as chief executive, Mr. Goffner is now chairman of the board. Another board member lent $2.4 million to the ailing Wyckoff at 12 percent interest, with the hospital required to put up several of its buildings as security. Yet another trustee, Andrew Boisselle, president of Cebco check cashing, provided on-site check cashing for Wyckoff employees.
When the chief executive lost his license after an accident, hospital security guards chauffeured him and his wife around the clock in a Cadillac Escalade or a Lincoln Town Car. Mr. Garg said in the interview that he suspected that the drivers of the Town Car and the Escalade were eavesdropping on his conversations. So he had the hospital purchase a used stretch limousine for about $33,000. The hospital recently sold the stretch limousine for $18,000; it had cost $33,000 eight months ago. It sold the Lincoln Town Car for $9,000 and hopes to get $18,000 for the Escalade.
The hospital all but defaulted on its $109 million in state-secured bonds, forcing the taxpayers to cover $10 million due to bondholders before the state agreed in May to defer the hospital’s overdue payments.
Mr. Garg became CEO in 2008. “The optics definitely don’t look right,” Mr. Garg conceded in an interview. “There’s no intention to waste money. Sometimes it just happens.” His attitude, he said, was that “if you can save a couple of million here and there, and manage to spend $500 on dinner, it doesn’t really matter.” Wyckoff paid for numerous meals at expensive restaurants for Mr. Garg, as well as his trips to Sutton Stogies for drinks and cigars.
What AngelPad founder, Korte learned from women to share with men: Collaborate, People in the room have as much to offer as speakers, manners matter, know what you’re “asking for”, it’s not ALWAYS business. From Forbes guest blogger, Thomas Korte. Isn’t it interesting what you can learn from people, in this case women entrepreneurs, with different perspectives and styles? And wouldn’t our boards/companies all be more successful with a wider group of perspectives, backgrounds, and styles so we too can learn to think differently?
Korte’s experiences at the Women 2.0 PITCH Competition mirrored my experiences at the Women Corporate Directors conferences where conversations are respectful, friendly, collaborative, focused, and helpful.
The link to his blog follows: