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...

http://video.cnbc.com/gallery/?video=3000545943

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.

The Weekly Fearful Roundup

This is a new feature that I am starting this week to highlight examples I see in business & life where fear is ruling our decision making processes.

1. Lets start this week with a Vanity Fair article on the Brian Williams mess, but more specifically the fall of NBC News and how it happened. It is a fascinating read on the impact of mergers and acquisitions on corporate culture and how not to handle employment decisions.

My favorite excerpt from the article is the following two paragraphs that highlight poor leadership, lack of trust, corporate politics and how they each can play a role in fear-based decision making.

According to one view, the Burke administration’s troubles at NBC News can be traced to the Ann Curry episode at Today, a messy situation it inherited from the Zucker regime. Line executives were sharply split over Curry’s desire to ascend from newsreader to Lauer’s on-air partner. The head of news, Steve Capus, was in favor; Today’s executive producer, Jim Bell, and Matt Lauer were wary. Capus prevailed, only to watch Curry’s ratings slide. By June 2012, when she memorably and tearfully announced her departure from Today, Capus and Bell were not speaking. “That’s where this whole thing begins to fall apart,” says the onetime executive. “Burke was the principal player [who made the decision to demote her], though he hid desperately behind this. Finally he makes a deal for her to go away and then gets cold feet about pushing her to announce it. Despite pleas from everyone, Burke would not push the situation. He just felt uncomfortable doing it, and he wouldn’t explain why. Which leads directly to this thing being a national ‘Oh, poor Ann Curry’ story, which was the furthest thing from the truth.”

The Curry saga convinced Burke that the news division under Steve Capus’s direction was broadly dysfunctional. “The prevailing line from the Comcast people when Steve Capus was in charge was all News needs is a real grown-up in there,” says a top NBC executive at the time. “You know, ‘These people don’t know how to run a business. What they need is organization. Change the structure, business development, better H.R., get some women in there.’ I mean, that’s verbatim. That was the script.” Bell was removed from the equation when Burke gave him the Olympics to supervise, but Burke wanted deeper changes. Insiders believe he found the Curry episode so distasteful that he resolved to distance himself from the details of talent management altogether. “This thing exploded into a soap opera, and let me tell you, it scared the hell out of Steve Burke,” recalls an executive who met with Burke regularly. “And that’s not a phrase you use about a tough guy like Burke. But I saw it.”

2. Next, I recently read about this new company that is participating in a business accelerator that I am familiar with.