Daily Lesson from Life 09 October 2008

Sprint Nextel execs top list of most overpaid: report

NEW YORK - An investor advisory firm has deemed Sprint Nextel Corp executives the most overpaid in corporate America, with top managers awarded pay valued at nearly US$74 million last year when the company struggled.

The mobile communications service provider had the worst 2007 pay-for-performance rating among the Standard & Poor's 500 index of large companies, Glass Lewis & Co said in a study released this week. Glass Lewis specialises in making recommendations to investors on how to vote proxy ballots.

Sprint hired a new CEO late last year as it grappled with customer defections. The company lost US$29 billion in the year from continuing operations, largely from a huge goodwill write-off and shares fell 30 per cent. The 2007 compensation figures Glass Lewis tallied include pay for both Sprint's former and current CEOs, which boosted the overall amount.

'It's very important to consider that 2007 was a highly unusual year because of compensation that was paid to an exiting CEO, as well as sign-on compensation paid to a new CEO,' Sprint spokesman James Fisher said. 'We had significant other severance charges for executive changes during the year.' He said the company's executive compensation structure 'is highly focused on pay for performance.'

Executive pay has become a major election-year issue as politicians rail against big payouts at companies hit hard by the Wall Street meltdown. After a public outcry, the US$700 billion bank bailout was altered to include some restrictions on pay packages at companies participating in the rescue.


Financial firms Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc, Washington Mutual Inc and Citigroup Inc were not among the worst offenders in terms of pay for performance, but all earned 'deficient' grades, Glass Lewis said in its report."


Millionaire employees! This is something that could not be fathomed in my younger days are now fairly common-place. I guessed this is a natural development given the size of the companies in today's world vs. 20 years ago.

It is my contention always that pay package should be broken down into 2 parts: Fixed Salary and Variable Bonus when the Fixed Salary should NOT be more than 10x the lowest paid salary employee while the Variable Bonus can be any % of the net profit after tax generated by the company recommended by the management and approved a simple majority of the company's shareholders.

In this way, we have equity in the Fixed Salary while we can have unlimited opportunity to share in the Variable Bonus as long as the company is making money!

Sadly a lot of high flyers will not go for it as they feel that they deserved more and better terms than 'ordinary workers'! Some developed the 'entitlement mentality' as they became successful over a few years period. The 'self-promotion and self-gratification' process slowly but surely blurred the distinction between what is reasonable and sustainable from what is pure greed and totally self-focus.

Lessons for me a leader are:

1. anchored in your value that no one a company made! As CEO you probably deserve a fixed salary that is 10x the lowest paid employee in the company. If you help the company to make money, you can share in the variable bonus as long as it is approved by the shareholders ultimately;

2. warn yourself against developing the 'entitlement mentality'. You are paid a reasonable and sustainable fixed salary to do a good job. When you succeeded, you will get more rewards in the form of variable bonus. On top of that, hopefully, you will feel rewarded by the respect and admiration accorded to you by your fellow workers. It has to be something other than money that drive you!;

3. when you are clear on your conscience that you are not overly paid. You have moral authority to demand sacrifices from others who work with and for you when hard times are here. It will be totally wrong for you to expect others to sacrifice for little when you continue to get your fat-cat pay!

Americans have erred. They, or some of them, have lost their way. It is for us to create a new order and make the difference going forward. You will be respected if you can clear this one. It will be the foundation upon which other good things can flow and grow!