|
Executive Pay
With John A. Challenger
CEO of Challenger, Gray &
Christmas, Inc.
Wednesday, July 18, 2001; 1 p.m. EDT
Washington's executives haven't let this year of layoffs and economic
uncertainty get their salaries down. Executive pay is made up of various
components, including stock options, salary and bonuses. But what else
can executives expect? And how do they negotiate such valuable packages? John A. Challenger, chief executive officer of Challenger, Gray &
Christmas, Inc., an international outplacement consulting firm, was online to talk about executive earnings.
Challenger was named chief executive in 1998, having served as executive
vice president since 1994 and vice president - sales from 1987.
Challenger's knowledge on corporate practices, workplace issues,
the economy and societal trends is sought out by CNN, MSNBC, CBS Evening
News, ABC World News Tonight, NBC Nightly News, Fortune, Business Week,
The New York Times, The Wall Street Journal, and major press associations
and syndicates.
Below is the transcript.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
washingtonpost.com:
In The Washington Post's recent look at executive compensation in the region, the data showed that executives' cash pay rose to compensate for slipping stock option values.
Is this typical for the rest of the nation as well?
Read the story: How Washington Elite Stacks Up.
View the charts: Total Compensation and Cash Compensation.
John A. Challenger: Executives are negotiating for higher salaries throughout the country. Just like the dotcommers, executives have discovered, to their chagrin, that compensation packages heavy on stock options have been huge underperformers in the last year.
Washington, D.C.:
Hello Mr. Challenger!
People make a lot of hay about executive salaries, and the different types of perks CEOs, etc., receive from their companies.
Is there anything us "normal" people can learn from their examples? Do normal people have the ability to negotiate more from their employers by way of perks?
Thank you for sharing your advice with us!
John A. Challenger: There usually is much more wiggle room than most people expect once an offer is made. The key is, once the offer is made. Many people start the negotiations process before the company has made the decision to hire them. There is a major demarcation line in the interviewing process. Before the offer is made, you must always position yourself and your questions from the position of SELLER. Only after the offer is made do you become the BUYER. Negotiate for perks that are realistic and would benefit you. Laptops, special hours, extra vacation, a better title, a higher salary, childcare are some examples of what you might negotiate for.
John A. Challenger: Hi all, I am happy to be here as part of the Washington Post Forum series. Hope I can get to all of your questions. Please feel free to ask me anything on your mind!
New York, N.Y.:
I read all the time about current corporate pay being completely out-of-wack with respect to the rest of the business world. But do you see current salaries being proportionately different from any other time in the past? Do you think current compenation levels are justified by these economic times?
John A. Challenger: The compensation packages that executives have received in the last decade have been exorbitant, in part because of the stock option component and the long bull run. But it's more than just the stock options. Chief executives here are paid far more for what they do than other execs receive in any other country in the world. In my mind, the packages are not justified, especially in a downturn. In fact, too many highly talented executives are leaving companies having accumulated such enormous wealth that there is no incentive to go back into the marketplace. That is a big loss of brainpower and knowhow.
Falls Church, Va.:
Do you think top CEO's are overpaid? After all, they are just human beings, and there are probably thousands of other well qualified people who would do their job just as well for less pay. Isn't the high level of executive pay due to the old boys club in which the Compensation Committee's are rewarding their friends?
John A. Challenger: CEOs are overpaid. Most are driven, talented, smart, etc. They would be doing the same thing if they were paid half as much. Today, shareholders are the driving force behind corporations. ONe of the chief causes behind the downsizing is shareholder pressure. Until the shareholders demand across the board change in exec compensation, it will probably not happen. Certainly comp committees use comparables to set salaries. The system in place now will not be easily transformed.
Washington, D.C.:
In your research, have you found that middle level managers' salaries are continuing to grow as well as top executives, or is the economic slowdown only impacting those who aren't at the top.
Thank you.
John A. Challenger: Compensation is holding up for middle managers. Few companies want to take the risk of hiring someone in a key position for less than he or she was making in the previous job. The assumption is that the person will keep looking or be unhappy.
Washington, D.C.:
Hello - given the "dot-com" crash and the current economic situation, what's the "right" salary and compensation a young CEO should be realistically expecting? Is there a range that is reasonable? For young CEOs how do you feel about things like earnouts and salary based on milestones? Thank you.
John A. Challenger: It IS more difficult for a young CEO or executive coming out of a dotcom to retain the kind of compensation that they made in the good days at the dotcom. I wouldn't try to figure out a specific range. Better to test the market, see companies, spread the word about your candidacy, and see what the market is willing to bear. When the money question comes up in an interview, make sure the hiring company knows that you are open on the money issue, and that you are looking for a company where you can help it achieve its goals. Use your high position as proof of just how accomplished you are.
Fairfax, Va.:
Peter Drucker once said that any company where the CEO makes more than 7x the lowest-paid employee was bound to have trouble retaining people and maintaining employee/employer relationships.
I'm of the opinion that these gigantic salaries (especially in spite of layoffs) foster a "every man/woman for themselves" mentality. Since the CEO is only looking out for their interests, why shouldn't the employee's? Meanwhile, Corporate America laments the lack of "loyalty" of today's workers. Any wonder why?
John A. Challenger: That seven times formula is certainly out the window today. It doesn't mean that the outrage at the high compensation that CEOs recieve isn't appropriate. It is. Long term loyalty to a company is no longer realistic either. Life time tenure is not a goal that either individuals or companies can ask or hope for from each other. Commitment rather than loyalty is perhaps a better way to look at the relationship between org. and individual.
Washington, D.C.:
Hi,
Did you notice that none of the people on the top 100 list were women? (Well, some people had initials--they might be female). I find it hard to believe that there are no women running comparably sized companies in the DC area who could be making as much as the top 100 men. Typical pay equity issue--too bad it happens even at the top.
John A. Challenger: Discrimination, the glass ceiling, is alive and well. Just read the back cover of Meg Greenfield's new book, which quoted some of her scathing comments on this issue. There are now significantly more young women getting college and graduate school degrees than men. It looks as though the young women are taking the steps to help make things change in the future. The higher level of education one gets, the higher the lifetime compensation.
Washington, D.C.:
Are many companies linking executives' compensation to achievement of diversity goals? If so, how?
John A. Challenger: Very few are linking the two. In the last few years, when the job market was very very strong, many companies were pushed into the position of hiring people that in slower times would not have been hired because of bias. Many of those companies are unable to turn back now, even in the slowdown, because they have seen just how valuable and productive those people have been. Companies lose competitive edge when they discriminate, and the bottom line is perhaps a more powerful force than discrimination.
Fairfax, Va.:
Commitment?!
Okay, sure people have to make money, and companies have a right to be profitable, but how on earth can companies expect commitment when your job is out the window the first wiff of trouble? Seems the motto these days is "work hard, get laid off anyway."
Maybe I'm being a cynical Gen-Xer, but the days of the "corporate man/woman" are dead.
John A. Challenger: No fault job change and loss have become a fact of career management. Work hard, stay networked, build your social capital, move proactively to new jobs, think of yourself as a free agent. Don't expect companies to keep you on just because you work hard. Expect to get paid well, find engaging work, keep your skills up to date, think of education as lifelong, not something that ends in your early 20s.
Schenectady, N.Y.:
What happens to the compensation structure of the organization when CEO salaries are so great does it cause problems for the restof the company's employees? It makes me wonder are the CEO's part of team or the sum total of the teams efforts?
John A. Challenger: The CEO must see him/herself as captain of the ship facing the same conditions as the rest of crew. They must be a part of the team. Exorbitant salaries make such goals hard to accomplish. Why do we pay sports stars and actors so much and teachers and social workers so little?
McLean, Va.:
When applying for a position, what is the best way to answer the question about salary expectations if you have not even interviewed for the job? Many companies ask this as a screening question to determine whether you are in the ball park before the interview. By stating a number the applicant sets an expectation and limits negotiating power later. Suggestions?
John A. Challenger: Don't set a salary level. Say you're "open." If you say a range you give the company permission to pay you at the bottom of the range. If you name a salary figure, the interviewer may feel that you are too expensive if the figure is beyond his/her expecations, and may feel you are not "heavy" enough if you name a figure below expecations. If you must name a figure, say "I made this (and name your salary figure) in my last job. It doesn't say whether you want more or would take less.
Schenectady, N.Y.:
The city I live in has been effected in large measure to the recent "globalization of the market forces" and it is a shadow of it's former self. How can we as Americans increase wages w/o investment of corporations? Are the CEO's interested in community well being as well as economic compensation?
John A. Challenger: We are seeing the emergence of the global economy. It's not going to change. Better to invest in education, technology, new skills, new businesses. Companies have swung way to far over towards being shareholder dominated. Stakeholders, which includes communities and employees, have much less say-so in how companies operate. But so do CEOs. CEOs are being pressured to make such decisions by forces beyond their control too.
Richmond, Va.:
This idea of the "free-agent" vs the long term commitment to an organization. You see this as something that will not affect our long term productivity as a society and nation?
John A. Challenger: Today it's long term commitment not to any one organization. You cannot see you identity tied up in any one company like it used to be in the days of long tenure. What's replacing that idea of long term fealty to a company is the commitment idea I talked about earlier. But also we are heading back to the days of the guilds when people took their identity from their profession, and from knowing those who do the same type of work they do. Big consulting companies, temporaries, lawyers, accountants, human resources professionals...the list goes on and on. This is where work identity will derive. I don't think it necessarily means lower productivity as a society and nation.
New York City, N.Y.:
Looking into the future, do you think technology salaries and job prospects will return to pervious levels?
I really miss having a lot of job offers and receiving big bonuses at the end of the year.
I know it's hard to be sympathetic to this type of question, but I did after all leave a lucrative career in a different field 2 years ago to try my hand at a dot-com. Was that a dumb move? Should I try to go back?
John A. Challenger: Technology salaries will come back. The tech sector is very volatile inevitably meaning there will be periods of drought and periods of abundance. But in the last decade, technology became more than just an industry, it is now also a functional area of every organization, in fact a profession. Every company needs technology experts, and the demand is only going to grow. That will help keep salaries up long term. Certainly, the move to a dotcom was not dumb, but just as certainly you can work in both old and new economy companies. I wouldn't rule either out.
Washington, D.C.:
Which young, up-and-coming executives in corporate America do you think will stand out in the coming decades? Who has the managerial skill, business acumen, and long-term vision of a Jack Welch, Bill Gates, etc.?
John A. Challenger: We may not be giving our young executives enough time to groomed, like they once had the opportunity to do. In the future, the best executives will be a honed by a large number of experiences with companies big and small and from different industries. They will need and find mentors. They will get lucky breaks, and make some of those themselves.
Washington, D.C.:
Mr. Challenger,
During this economic slowdown, is there anything cash-strpped employers can do to boost employee retention? I'm a small business owner and sometimes I feel like we lose our good talent because our salaries just aren't high enough.
Thanks
John A. Challenger: Small business owners can be much more flexible than big companies. Listen to each of your employees and find out what is most important to him/her and then find a way to meet those needs. It's not only about money. It's about freedom and recognition and value too.
Montgomery County, Md.:
I'm a finance professional looking to make the jump from Controller to CFO. I'm particularly interested in doing a start-up. I have lots of experience with VC backed companies. Any advice on how to approach the search?
John A. Challenger: Meet as many of VC people as you can. Prove to your present company that you deserve the job there. Your track record in the last two to three years is the surest ticket to a promotion in the next job. Meet presidents of small companies in the area, ones that might be looking for a CFO.
Washington, D.C.:
Mr. Challenger,
I am in the computer field with five years of experience. My job responsibilities include performing day-to-day techie tasks (networking, Web, etc.) as well as overseeing our entire information system. However, I do not have any supervisory experience. I would like to remain in management but, I am unsure as to how will this impact my next position?
John A. Challenger: I would continue to do what you are doing. As your company grows, it may need to hire more people in IT. If you are doing a great job, it is likely that you will manage them. If you do want to look for a job at a larger company, don't limit your search to jobs that only include supervisory experience. Some hiring companies may give you the chance, others will want you to prove yourself and grow into the role.
Bowie, Md.:
Do you think high salaries at the top end are symptomatic of a "brave new world" as money gravitates toward people who and manage knowledge and machines, and away from people whose skills get gradually replaced by those machines.
John A. Challenger: We are in the midst of a sea change from machines to service. There will be fewer manufacturing jobs in the future and more teachers, musicians, doctors, personal trainers, financial planners, consultants, and on and on. The jobs aren't disappearing; they are changing.
New York, N.Y.:
Mr. Challenger--
Two questions:
As I frequently see your name in the press in conjunction with layoffs, I was wondering if we've seen the worst of corporate downsizing or do you anticipate there will be more to come, and if so, why?
Compensation for corporate executives certainly does seem to be soaring these days. It's always struck me as somewhat of a disparity as to what a CEO of a Fortune 500 corporation will be earning compared to a lowly assembly-line worker at the same company. Isn't there a point when shareholders and boards-of-directors will have to say "Enough already!" and not given into the demands of these greedy people?
Thanks for responding.
John A. Challenger: I am very concerned now that we are moving into a period of much slower growth. We have the old economy manufacturing in recession and the new economy tech sector in recession. It is the service economy, which is the bulk of our economy holding it together. But there are signs that it is beginning to deteriorate, and it look as though, as those companies begin to cut back, we are going to see higher unemployment.
John A. Challenger: Consumer spending, as unemployment rises, is likely to get worse. Consumers are spending too much today, given the economic situation, on housing and cars. Unemployment reached 7.8 percent in 1992 and 10.8 percent in 1982, and yet, the ties that bind companies to people are much looser today than they werer a decade or two decades ago.
Thanks all very much for being here with me today.
| |
© Copyright 2002 The Washington Post Company | 
