Vol. 52, No. 10
Company revenues outpace executive pay; mimicry can help in negotiations; dangerous hobbies entice many CEOs; more.
Corporate Revenue Rises Faster Than Executive Pay
Amid numerous complaints that top executives make too much money, a report released Aug. 24 by the Economic Research Institute (ERI) and Career Journal.com revealed that corporate sales during the past 10 years have risen faster than executive pay.
Based on compensation data reported to the U.S. Securities and Exchange Commission (SEC) between 1997 and 2007, the August 2007 Executive Compensation Index report examines average total cash compensation and overall total compensation paid to executives at large publicly traded companies between 1997 and 2007 and compares the results to total revenue received by those companies during the same period.
While company revenues rose an average 131.5 percent, the average total cash compensation for executives rose by 116.6 percent. However, when overall total compensation, including stock options, pensions and incentives, was added, the average rate of increase was a much more modest 20.7 percent.
The index was calculated by the Redmond, Wash.-based ERI and produced in conjunction with The Wall Street Journal's online Career Journal. Researchers collected data from a representative group of 45 publicly traded companies randomly selected from approximately 6,500 companies that report such data to the SEC.
ERI Director David Thomsen says the findings reflect a continuing trend away from a guaranteed base salary and a shift from stock options to restricted stock awards, adding, "More corporate boards are tying compensation packages to performance through incentive plans, stock options, restricted stock awards and long-term incentive plans."
Small Businesses: Economy's Bread And Butter
Small private companies are the bread and butter of the U.S. economy, according to data collected from chief executive officers between April 19 and May 31 by management professors at Southern Methodist University's Cox School of Business in Dallas. Professor Miguel Quinones says 90 percent of the survey's 577 respondents lead small private companies in the Dallas-Fort Worth area.
An optimistic bunch, most -- 70 percent -- said they expect their companies' financial fortunes to head upward. And while they suspect that the overall U.S. economy will improve as well, they are far more confident about the economy of their own areas. Quinones says more than half of the respondents, 69 percent, work for companies with annual revenues of $10 million to $50 million and fewer than 100 employees. Small companies such as these represent the bulk of the American economy, he notes, while large public corporations represent a scant 1 percent to 3 percent.
The majority of respondents identified domestic competition as the top challenge their organizations face. While large companies may compete in the global marketplace, "CEOs at small private companies worry more about the competition down the street than they do about foreign competitors," Quinones found. He adds that the Dallas-Fort Worth area, the fourth largest metropolitan area in the country, "reflects the landscape of business in America."
Overall, life is good for these CEOs. More than 60 percent said they were very satisfied with their jobs; nearly 70 percent reported that they were also secure in those jobs.
Large global organizations tend to receive the most public attention, but Quinones cautions against "overlooking" small companies. "We need to really stay on top of what is affecting small businesses and what their [leaders are] thinking in order to get a true picture of the American economy."
Chameleons Win at Negotiation
Negotiators may increase the odds of success at the bargaining table by copying an opponent's gestures, postures and mannerisms during the negotiation process. Research conducted by three business school professors and released at the August 2007 meeting of the Academy of Management reports that mimicry may be an effective way for opponents engaged in complex negotiations to build the mutual trust that can lead to win-win situations for both sides.
To test mimicry's effects, professors William W. Maddux of INSEAD business school in Fontainebleau, France; Elizabeth Mullen of Stanford University in Palo Alto, Calif.; and Adam Galinsky of Northwestern University in Evanston, Ill., conducted two experiments using MBA students. In "Chameleons Bake Bigger Pies and Take Bigger Pieces: Strategic Behavioral Mimicry Facilitates Negotiation Outcomes," they report that 10 out of 15 negotiations concluded with deals when one party mimicked the other. Without mimicry, only 2 out of 16 negotiations concluded with a deal.
Even a situation that appeared impossible to resolve ended successfully with the help of mimicry: A negotiation for the purchase of a gas station involved a buyer whose top offer was less than the minimum that the seller maintained he would accept. There was, however, a sensitive bit of information that allowed for some wiggle room.
The seller was burned out and needed to take a vacation from work. Eventually, though, he would need to return and take a job. Being able to count on a job and a salary at his former business when he returned would be a big plus.
In turn, the buyer would need to hire a manager for the station. Once he understood the seller's interests, he was able to juggle multiple issues and multiple trade-offs to the ultimate satisfaction of both parties.
The authors explain their findings this way: "Negotiators often leave considerable value on the table, mainly because they feel reluctant to share information with their opponent[s] due to their fears of exploitation. By creating trust in and soliciting information from their opponent[s], mimickers do indeed seem to bake bigger pies at the bargaining table, and consequently take a bigger share of that pie for themselves."
Interestingly, "none of the participants who were mimicked noticed that their opponents were copying their behaviors, suggesting that the effects of being mimicked occurred automatically and unconsciously."
Some CEOs Seek Out Thrills ...
Many of the best CEOs engage in dangerous hobbies, says Jules Crystal, a partner in the labor and employment law practice group at Bryan Cave LLP. "These people are just wired differently."
While the majority of CEOs don't practice bungee jumping or skydiving in exotic locations, Crystal estimates that about 10 percent of the top leaders "have that gene to do things differently." As a result, he says, some companies have tried to limit off-hours activities by writing restrictions into the contracts of incoming CEOs.
Corporations routinely take out insurance policies for their CEOs as part of their fiduciary responsibilities to protect valuable executives, but limiting how those execs spend their personal time may also limit companies' choices of CEOs.
Crystal says HR executives should be aware that a highly desirable, sought-after candidate who loves to fly his single-engine plane alone in remote spots, or race stock cars, for instance, may not be willing to give up those pleasures. And that individual may be the one the company wants most. While candidates may agree to some limits on dangerous pastimes, says Crystal, "nine out of 10 of your top candidates won't accept a complete restriction. They will simply go elsewhere."
... And Some Are Wired for Cutting-Edge Technology
Entrepreneur Jeremy Allaire, whose latest venture is Brightcove, an open Internet TV service he founded in 2004, gets his kicks by exploring the myriad possibilities of the Internet.
He started entrepreneurial activities young, founding his first business -- baseball trading cards -- in junior high school. Allaire Sports Cards was successful enough to provide him with pin money in college.
In 1990, Allaire was studying political science, economics, philosophy and international affairs -- practically everything but technology -- when "I got access to the Internet." He immediately recognized the significance of the technology. "I'm a member of the Apple 2 generation, and my interests always lay at the intersection of technology and social and economic change," he said at the taping of an episode of "CEO Exchange," a public television series sponsored by the Society for Human Resource Management.
Speaking in Cambridge, Mass., to an audience of Harvard Business School students and invited guests, Allaire disclaimed any "deep technology" background. "I've just learned what I've needed to learn in order to operate in this business."
This maverick entrepreneur remains passionate about "what media can do globally," and aims to hire like-minded people who share that passion. It's also important that they fit into the company culture -- "a culture of people who really enjoy working together." No "jerks" and no "prima donnas," he says.
While he didn't admit to a penchant for bungee jumping, this CEO seems to find plenty of excitement in his pioneering role in the world of Internet TV and computing technology.