Sunday, August 28, 2016

What CEO Pay Says About Your Culture

This week I was reminded of Chapter 4 on Trust in my book Corporate Bravery when I saw two very disappointing news stories in the headlines.

While the two headlines may seemingly be unrelated that couldn't be more about the same issue - a culture of trust in business organizations. Or sadly, what has become a culture of mistrust.

The first story was the incredible arrogance of Mylan, the company that manufactures and has the patent for the Epipen, the shot used to treat severe and life threatening allergic reactions. While the news story of its apparent accelerating price increases has been bubbling to the surface for some time, it hit a crescendo this week when the CEO of Mylan Heather Bresch appeared on CNBC to answer questions.

What happened next was, well just see for yourself...
One of the things Heather was confronted with in the interview was her sizable pay increase to over $18 million. To which, like most of the other questions, she changed the subject and failed to answer the questions.

My feelings regarding the entire Mylan saga was punctuated by a study released this week by Glassdoor, the online recruiting site that allows employees (and former sometimes disgruntled employees) to rate their employers. In the study they found that, "No matter how you look at the data, we found a negative link between CEO pay and CEO approval ratings."

The report continues by saying,
"Then, Glassdoor's researchers controlled for other factors, such as the company's financial performance, CEO demographics and how the culture was rated by employees on Glassdoor. After doing so, researchers still saw a clear link between the lowest approval ratings and the highest-paid leaders, though the effect was lessened in companies that also had a good corporate culture."
And it all goes back to trust and CEO pay is a major barometer for the kind of trust being established all the way down to the lowest levels of the organization.

In addition to mistrust, I document in Corporate Bravery how this disproportionate increases in pay packages at the top also cause fear based decision making that is clouded by protecting the growing pay they are receiving. "When focused on protecting what they have or what they can continue to accumulate, executives are far less likely to make good, bold decisions that create lasting, long-term value for the organization."

The same thing appears to be happening at Mylan as Heather and the executive team has clearly lost focus on the long-term impacts of their ability to raise prices past a point the public is willing to tolerate.

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