Save Money – Outsource Your CEO Today

Discussion
Jul 19, 2005
George Anderson

By George Anderson


Labor, for most businesses, is the major expense. So, when a company feels a need to reign in costs, labor is often one of the first areas looked at to cut back.


In some cases, that means layoffs, with the remaining staff being left to do the work done by more hands before. In others, it means laying off high-priced domestic workers and outsourcing jobs to lower paid workers elsewhere.


In her Wall Street Journal In The Lead column, Carol Hymowitz wonders if perhaps it isn’t now time, in the search for lower labor costs, for companies to start laying off their domestic CEOs and outsourcing the function to lower-paid executives in other countries.


Ms. Hymowitz points out that the median annual salary and bonus for U.S. chief executives was $2.3 million in 2004. Compare that to the $1.2 million paid to CEOs in the U.K., $857,000 to top execs in France and $386,000 paid to counterparts in Sweden.


Chief executives in Asia are paid even less, according to Mercer Human Resources Consulting, with the average for top companies in Japan being $317,864; $302,078 in Hong Kong; $263,301 in Singapore; and only $88,117 in India.


The numbers are compelling for going overseas to fill top executive positions and, perhaps, writes Ms. Hymowitz, it is time to consider this option.


If not that, she posits, then boards of companies need to establish rational compensation packages for employees in the executive suite as well as those who make up the rank and file.


She writes, “What is galling is how rarely, even in a time of heightened governance sensitivity, compensation is linked to performance. Newly named CEOs are guaranteed a trough of money before they’ve done any work. When they fail and are dismissed, they are handed even more money.”


Moderator’s Comment: What is your reaction to Carol Hymowitz’s article suggesting perhaps it is time to begin outsourcing the chief executive (and logically
other functions) to other countries where compensation is lower? How does the retail industry measure up for rational compensation packages throughout organizations? Are there
companies that are models for how workers at all levels should be paid?

George Anderson – Moderator

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11 Comments on "Save Money – Outsource Your CEO Today"


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James Tenser
Guest
15 years 7 months ago

CEO salaries may be excessive in many instances, but hiring a foreign national for a few hundred thousand less may at best have a symbolic impact on the cost of doing business.

Certainly, it is valid to point out that executive compensation has reached a level where corporate leaders may lose touch with reality. In this regard, I consider Ms. Hymowitz’ proposal to be a bit tongue-in-cheek.

Outsource leadership? I don’t think so. Hire foreign nationals? Why not, when they possess the talent and experience? In a global marketplace, global price competition should prevail. Executive salaries are no exception.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 7 months ago

Carol Hymowitz clearly lives in an alternate universe where companies hire leaders who have no qualifications or other previous successes, and thus have no bargaining power. In the real world, companies tend to hire executives who have demonstrated leadership elsewhere, and who have employment options. Think about the National Basketball Association and you’ll see what I mean. Look a little deeper into the NBA and notice how many coaches are being paid multi-millions in golden parachutes after being fired.

That’s bidness, Carol, so get used to it. The nature of business is investment, and the best companies routinely invest in leadership. Sometimes it works, sometimes it doesn’t. For your next project, investigate the corporate use of copiers for memorializing various body parts. That’s a scandal waiting to be exposed.

Don Delzell
Guest
Don Delzell
15 years 7 months ago
I like the idea that the article was either satire, or intentional absurdity. From a retail perspective, though, it does bring up a very real issue in both C-level compensation and C-level talent pool. My observation is that retail C-level jobs are handled very much like major league baseball manager jobs. It’s very hard to get one if you haven’t already failed at one for someone else. Further, the mere fact of having held the position, with subsequent failure, seems to qualify applicants. What retail needs is infusion of new blood… New ideas, new methods, new perspectives and new energy. It’s the very rare individual who has “grown up” within a particular retail environment and still managed to retain independent creative thought. Too often, even on a subconscious level, the C-level individual is constrained by the world they know. Offshoring C-level talent is not absurd. Outsourcing it is. Multi-nationals are finding talent in every division, and bringing in division heads from other geographic units has worked relatively well in many cases. Talent is talent, and… Read more »
Mary Brill
Guest
Mary Brill
15 years 7 months ago

While the WSJ piece was satire, the underlying point is very much on target. While individuals who rise to the CEO level have more talent than the average “line” worker, very few are worth the obscene amounts of compensation they receive. When my company looked to outsource a couple hundred line jobs overseas, it was clear to all of us that trimming two upper level senior positions would have easily saved the company more money than laying off hundreds of peons.

Bernice Hurst
Guest
15 years 7 months ago

Tom’s comment lead into the point I was going to make. If lower level employees have been outsourced, then who or what is left for a CEO to lead? How can he/she walk the floor or keep in touch with staff and customers when they are scattered worldwide? Just because ownership may reside (more or less) in one country, doesn’t necessarily make an organisation American or British or French or anything else. I’m not actually sure, any more, where a CEO should be based; head office is not necessarily the right place if the bulk of the most important, hands on, employees are located elsewhere.

Steve Weiss
Guest
Steve Weiss
15 years 7 months ago

Was this written as satire? Sound like it. Hits the mark, though, in an era of governmental bias towards the interests of the wealthy. Shake those trees!

George Anderson
Guest
George Anderson
15 years 7 months ago

Employees, aka human beings, in the best of business situations are often seen as a disposable asset. In the worst cases, they are viewed as a burdensome expense and an impediment to profitability.

Perhaps outsourcing and off-shoring wouldn’t be such an easy out for top executives to explore for lower-level employees if they themselves were constantly faced with the prospect of being replaced by a cheaper hire.

Carol Hymowitz may be pushing the absurd button but the basis of her inquiry is valid. Chief executive officer or any other upper management position is a job that can be done by any number of people on the planet. If the rationale is that the company can save money and improve its competitive position and profitability by outsourcing or off-shoring IT or textile plant jobs, for example, then why shouldn’t the same type of cost scrutiny apply to all within a company?

Len Lewis
Guest
Len Lewis
15 years 7 months ago

I firmly believe that compensation should be tied very closely to performance — at all levels. But to suggest that companies outsource the CEO function is absurd. Never has there been a time for executives to be inside their organizations, to spend time with their people at headquarters and in the field, learning everything they can.

First of all, what she is suggesting may work for car companies — they’re hip deep in troubles anyway so it couldn’t hurt — but not for retailing. You should hire outside consultants when certain situations arise, but not to run the company.

Also, let’s be clear. There’s a difference between outsourcing and offshoring. She’s suggesting the latter. At a time when so many American jobs are going overseas and American business — including defense and energy — are being sold off piece by piece to foreign interests, this may not be the time to encourage such an action as she suggests.

Tom Zatina
Guest
Tom Zatina
15 years 7 months ago

Good comments above. I like Len’s use of the word “absurd.”

Among other responsibilities, a CEO is charged with being a leader. For many global businesses, it may not matter if the CEO is “offshore,” since it is hard to tell which shore is the main shore. But for most companies, the CEO should be on site and personally involved in leading and understanding the operating details of the business.

Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 7 months ago

It is very hard to believe such a thought could occur.

The CEO is the thread to strategic planning, constant on-target direction, and moving the business forward.

We might as well hire a consultant instead. Hmmmmmmmm

Mark Lilien
Guest
15 years 7 months ago

Sourcing CEOs from other countries might work well and then businesses can try sourcing board members and other key executives from other countries.

The risk is in how quickly and thoroughly the foreigners understand key aspects of American culture that relate to the business.

I’ve worked with at least one foreign CEO and several foreign consultants, and their performance ranged from incompetent to outstanding (the same range as American CEOs and consultants I’ve worked with).

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