MONEY

With Executive Pay, Bosses and Boards Need Sensitivity Training

With top-executive compensation, companies should consider all of their employees.
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Some CEOs have all the luck--but should they also have all the money?

Saint Louis-based carpenter Scott Bujnak led his own quiet protest against executive pay recently. He quit his job of 18 years.

As a maintenance man for St. Louis Post-Dispatch, Bujnak specialized in saving money his company money by finding ingenious ways to fix things. Then he found out how much the CEO of Lee Enterprises, the paper's parent company, makes. Mary Junck recently received a whopping $700,000 bonus. Immediately, he realized his efforts at saving $50 here and $25 there were all for what purpose? To give the big boss a big bonus. So, he quit.

Folk hero or dumb as a rock?

At first glance, I tend towards the dumb as a rock simply because quitting a job without a new one lined up can be extremely taxing on your own finances. Finding a new job is often a difficult and emotionally exhausting exercise, even when finances aren't your biggest concern. And, 56-year-old Bujnak will also face the added burden of finding a job when age discrimination runs rampant. (Official discrimination claims go up and down with the economy, but people consistently write me far more often about age discrimination than they do about racial, gender, or national origin discrimination.)

But, according to St. Louis Dispatch columnist Bill McClellan, Bujnak is still happy. McClellan writes:

"I have a smile on my face you can't wipe off," he said. I asked Kaye how she took the news that her husband was going to quit. "I knew it was coming," she said. "When he told me, I said, 'Let's just get it done.' He's not the kind of man who won't be able to make money."

So, maybe it was the right move. We can't underestimate the happiness brought by doing the "right thing." And that right thing is, for Bujnak, pointing out what he finds to be ridiculous--a $700,000 bonus for the task of refinancing a bunch of debt.

But, let's stop and think about executive salaries. Inc.'s readers include many small to medium business executives, and most would be thrilled with a $700,000 payday.

But the question of whether it's smart to give your top-tier talent big bonuses when your lower-level employees are asked to scrimp and save is an important one. Is the board of Lee Enterprises doing the best thing for the company in handing out money to the CEO for repeatedly refinancing their debt? Turns out Junck received a $500,000 bonus in 2012 for refinancing the debt as well. This came on the heels of a layoff at another Lee owned paper.

Here's the one thing that people who complain about such bonuses don't think about--maybe what Junck did was worth $1.2 million (2 bonuses for refinancing). I don't know. I haven't looked at Lee Enterprises' books and--this is a key point--even if I had looked at them, I still wouldn't be able to tell you if this act was worth the money they paid out to the CEO.

Here's what I do know: We often look at executive jobs and think, "Hey, I could do that!" But really, you can't. In fact, CEOs often miss the mark, and as a result, CEO turnover is actually quite high--14.2 percent in 2011 for the largest 2,500 companies. We can all tell in retrospect that someone did a bad job, but predicting going forward is much more difficult.

Being an executive is a difficult task and perhaps Junck is doing far better than the board of directors expected, hence the bonus. It's possible that without her refinancing moves, Bujnak would have been unemployed anyway--due to layoffs. Again, I don't know. But the board felt it was a wise move.

You can argue the wisdom of board decisions all day. But those of us who don't sit on corporate boards don't know all that goes into executive compensation decisions. Still, there are some givens:

Take care of all of your employees. Either way, before you give big bonuses to your top people, you need to make sure all of your people are taken care of. It's doubtful that Bujnak would have made the same bold move if he had been regularly rewarded with bonuses (albeit magnitudes smaller) of his own for all the cost savings he did for the company.

Don't give with one hand and take away in another. Doing things like, denying raises in the same year that the CEO gets a big bonus isn't a good idea. Not only might it foment anger in your ranks, you may land some negative press too.

In the end, you shouldn't be afraid to pay top dollar for top performing CEOs and other executives. But, you must be willing to look at overall company compensation to ensure that all employees are rewarded for outstanding performance.

Last updated: Apr 30, 2014

SUZANNE LUCAS | Columnist

Suzanne Lucas spent 10 years in corporate human resources, where she hired, fired, managed the numbers, and double-checked with the lawyers.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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