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    In Defense of The CEO

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    In Défense of the CED — WS}. com Read Barron's whenever, wherever you want it. Sanda ree RL ha emt ost te Sesaraeninare hn curewracooumnne THE SATURDAY ESSAY | January 11, 2013, 8:56 p.m. ET In Defense of the CEO 3asn3 819M Chauffeur-driven limousines, millions in stock options, golden parachutes, It's no wonder bosses' pay and perks can rankle. Here's why the best ones are worth it. By RAY FISMAN and TIM SULLIVAN apis outrage over CEO pay and pets ip undeanebl, says author Ray Fisman ina dsusson wih weekend Review edor Gary Rosen, but may tp exes provide good vale for fo lava Componcat A.$90,000 area rug, a pair of guest chairs that cost almost as much, a $36,000 toilet and a $: 1,400 trash can—these are just a few of the expenses from a remodeling of John Thain's office when he took over as Merrill Lynch's chief executive officer in December 2007. The total bill came to an astonishing $1.2 million—about the price of five average single-family homes. ‘Those same remodeling expenses contributed to Mr. Thain's resignation just over a year later, after Bank of Ameriea bought Merril, and helped to define the popular image of the CEO as someone who lives a life of extreme privilege: gold-plated faucets, country club memberships and chauffeur-driven limousines, all paid for through corporate largess. Mr. Thain's limo tab included $230,000 for his driver—$85,000 in salary, the rest in overtime and a bonus. This was on top of ety fontne com artle$810001424127887324081704578253601161769648.KEYWORDSuin defense +of¥CEOspavtprinaode Page 10f6 tn Defense ofthe CEO - W.com ans 819M Mr. Thain's receiving a reported $78 million in compensation for 2007. It's easy to get upset about perks and pay packages like Mr. Thain's. But even in the face of public and investor outrage, CEO salaries are still on the rise. Progress Energy's CEO Bill Johnson received a $44 million payout when he left the company after its merger with Duke Energy last year, and Abercrombie CEO Michael Jefries took home over $48 million in 2011—while the ‘company's stock price tanked. MartiStephen Webster Many C58 er overdo ron palo Incompetence. But you can only appreciate f performance ence you understand what a great leader does. Excessive, decadent? That's a hard call to make without having some idea of what a CEO does. Many CEOs are ‘overpaid or, even worse, paid for incompetence. Still, you can only appreciate the difference between pay-for- performance and pay-for-incompetence by first understanding the CEO's job. Let's start with the basics: how chief executives spend their time. Among the first researchers to give us a glimpse into the day-to-day life of the CEO was management guru Henry Mintzberg, who followed a handful of business leaders for his Ph.D. thesis at the MIT Sloan Schoo! of Management over four decades ago. He discovered that, first and foremost, CEOs go to meetings. Lots of them—it is where his research subjects spent over 80% of their work hours. ‘The astonishing thing is that the percentage of time CEOs spend in meetings has hardly shifted in four decades, despite innovations like email. A study conducted last year by Oriana Bandiera of the London ‘School of Economies, with Columbia's Andrea Prat and Harvard's Raffaella Sadun, assembled time diaries for hundreds of Indian CEOs. (With other collaborators, they have done similar research on smaller samples of Ttalian and American executives.) Unlike Dr. Mintzberg—who did the legwork himself— this group of researchers asked the CEOs' executive assistants to record in 15-minute increments how their bosses allocated their time over the course of a week. Were they working alone or in a group? If in a meeting, how many were in attendance? Was the meeting with employees or with outsiders, via telephone or in person? Despite the vastly different geographies and eras—and differences in customers, products and size of organizations—the CEOs all spent their time in much the same way: in face-to-face interaction. ep online. com article/SB10001424127887324081704578233601161769648.HemI(KEYWORDS~In efene +01 +CEO payPrinMode Page 20f 6 In Defense ofthe CEO -WSL.com wasp sa9 aM ‘How » GEO Spends the Dey: ‘That time is often marked by interruption. In the five iz weeks of Dr. Mintzberg's study, he recorded. extraordinarily few instances of a CEO alone and without disruption for more than 15 minutes straight. ‘Half their activities lasted fewer than nine minutes— and this was in the pre-BlackBerry age—while only 10% ‘went on for more than an hour, Those hourlong stretches were taken up primarily with hourlong meetings. The more recent studies have found a similar pace of interruption. Yet saying that the job of someone like Jeff Bezos consists of going to lots of meetings is a bit like saying that Shakespeare wrote words. True, but pretty thin for explaining what made, say, Steve Jobs Steve Jobs. Meetings remain the focus of the CEO's day because such personal interactions are critical to learning the | information necessary to run a company effectively. | After all, one of the most important jobs of managers is. | to decide what information gets passed up through the | chain of command. If CEOs were to rely solely on written reports and data sheets from self-serving underlings, they almost would be guaranteed to make the wrong decisions, What manager wants to pass on pete trom eae bad news—so much easier to do in a report than when Thrve Troubled Alles, One Superpower you're being questioned in detail by your boss? This, Hacking the Hypertinked Heart very problem was at the root of Toyota's response to its, ‘Apocalypse Tips, From Antibatsto problems in 2009 with sudden, unexpected j acceleration in its vehicles: Managers were all too i willing to paint a rosy picture for the CEO, which hampered his ability to direct the company to respond appropriately. Harvard Business School professors Michael Porter and Nitin Nohria argue that the skill to extract from underlings the critical details that are needed to inform top-level decisions is part of i what makes the best CEOs better than their peers. It works in reverse too. The information the | CEO needs to convey is just as prone to being misrepresented and misinterpreted as it works its way through a corporation, across shareholders and among customers. So, in the vast majority of meetings, CEOs are not just uncovering information but also constantly refining their message. | Consider, for instance, founder Tony Hsieh's drumbeat in referring to Zappos as a "service company that just happens to sell shoes.” Meetings give him the opportunity to let his stakeholders know exactly what he means. The company hit its billion-dollar sales goal two years before schedule, in 2008, and was acquired by Amazon.com in 2009 for a reported $1.2 billion. ‘The Porter-Nohria view is backed up by the data. In their time-use study of 354 Indian CEOs— ‘ap fone ms-om/arce/$630001424127987324081704578233601161769648 hank erWORDSain

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