Hat tip to occasional links & commentary.
I leave it to statisticians to tell me whether there is a relationship between the profitability of companies and CEO pay. I just note that the CEO on this chart whose company was the most profitable, Jeff A. Stevens of Western Refining, got one of the smallest compensation packages, and the CEO with the biggest compensation package, Larry Ellison of Oracle, headed a company that lost money.
It is true, of course, that executive pay is related to the size of the company and other factors besides annual return on equity, so there may be other rankings in which these figures seem to make sense. I’d be interested to know them.
Hat tip to occasional links and commentary.
The U.S. Bureau of Labor Statistics finds in its surveys that there are about 10 people looking for work for every three jobs that are open—more than twice the proportion of job-seekers before the recession. Yet many employers say there is a labor shortage. They say they have jobs that they can’t find people to fill.
Peter Cappelli, director of the University of Pennsylvania’s Wharton Center for Human Resources, says that the problem is not unqualified job-seekers. The problem is bad hiring practices.
First, he says, when employers advertise for employees, they cast too wide a net. They get a tidal wave of applications, more than anyone can possibly consider, and so they have to look for reasons to thin out the applications.
Some throw out all applications that use certain buzzwords, or omit certain buzzwords. Some throw out all applications which indicate that the person is older than a certain cutoff point (even though this is illegal) or that are worded so as not to reveal the person’s age. Many throw out all applications from people who don’t have the exact skills required, and many throw out all applications from people not currently employed.
So if the only person you are willing to hire is someone already doing that exact same job for some other employer, and you don’t want to pay that person a premium wage to lure them away, then, yes, you are going to have trouble filling that post. I’m exaggerating to make a point, but what I hear from my friends who are looking for work confirms what Cappelli says. Many employers have arbitrary filtering systems that reject job applications from good people.
Another problem, as Cappelli sees it, is that employers don’t want to hire people they would have to train. They don’t want to spend the money to train people because they’re not confident that the trainee will stay with them long enough for them to get their investment back. In fact, the better trained someone is, the better chance the person has of getting a better job elsewhere.
Job-seekers these days spend their own money trying to acquire qualifications they think employers want, but often those qualifications are a mismatch.
According to the theory of how a free-market economy is supposed to work, this isn’t supposed to happen. According to economic theory, if there is a shortage of workers to fill a certain type of job, then wages for that job will rise until supply equals demand. The fact that this isn’t happening suggests that theory doesn’t always apply to the real world.
Part of the reason employers are so slow to fill job openings is that the reason they advertise for new workers is merely to appease their over-worked existing staffs. As long as they are going through the motions, they can tell their exhausted existing workers that they are doing the best they can.
Cappelli has ideas for making things better, including the following:
Cappelli also suggests giving new hires a learner’s wage while they receive on-the-job training. This could be good, but it offers possibilities for abuse. Unscrupulous employers could hire cycle after cycle of learners and never give them full pay. In this age of widespread wage theft, this is a realistic concern.
Click on Why Companies Can’t Find the Employees They Need for an article by Cappelli in the Wall Street Journal. In fairness to him, his tone is less strident than mine is.
Click on Why Good People Can’t Get Jobs—What You’re Up Against for a review of Cappelli’s book, Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It. I haven’t read the book.
Here are links to articles I found interesting about what happens when the profit motive overrides professionalism, social responsibility or obedience to law.
Yves Smith describes the corporate model for medical care, which is to set a limit on how much time a physician can see an individual patient, so as to maximize the number of patients seen in a day. This means weeding out patients with complicated problems or without good insurance.
Daniel Luzer of the Washington Monthly tells how college endowment funds invest in student loan servicing and collection companies such as Sallie Mae. The perverse incentives are that the higher the college tuition, the greater the interest payments and the more profitable the investment. Sallie Mae is the nickname for a government lender that was privatized in 2004 and became SLM Corp.
Lynn Stuart Parramore of AlterNet reports on the practice of wage theft, which includes not paying for all hours worked, not paying overtime, not paying minimum wage and confiscation of tips. A survey of 4,000 low-wage workers in New York, Chicago and Los Angeles found that 26 percent were paid below minimum wage and 76 percent were denied overtime pay for working more than 40 hours a week.
Lynn Stuart Parramore reports on how banks such as Chase JP Morgan are committing the same kinds of abuses in collecting credit card debt that they used in collecting mortgage debt. What they do is “robo-sign” lawsuit claims without checking records to make sure the information is correct, and give “sewer service” (throw the legal papers in the sewer) of the claim to the debtor. The result is that debtors’ wages are garnished even though, in some cases, they may be paid up, and lots of fees and charges are added to their debt without their knowledge.
Sam Walton, the founder of Walmart, was a business genius. But his heirs, to put it as kindly as possible, are not.
Now Walmart management is seriously thinking about giving its customers discounts in return for delivering on-line orders within their ZIP codes. This is deeply crazy. No doubt their lawyers and insurance companies will talk them out of actually attempting this.
The Walton heirs are a good argument for keeping estate taxes high enough that important business enterprises do not fall into the hands of the idiot children of great entrepreneurs. The operation of the free market will catch up with Walmart eventually, but not until a lot of good, hard-working people are hurt.
Click on Walmart faces the cost of cost-cutting: Empty shelves for a report from Bloomberg Business News about the company’s troubles.
Click on Wal-Mart may get customers to deliver packages to online buyers for a report from Reuters about management’s bogus solution.
The chart and article below are from the American Enterprise Institute’s public policy blog.
The blue line in the chart above displays total annual print newspaper advertising revenue (for the categories national, retail and classified) based on actual annual data from 1950 to 2011, and estimated annual revenue for 2012 using quarterly data through the second quarter of this year, from the Newspaper Association of America (NAA). The advertising revenues have been adjusted for inflation, and appear in the chart as millions of constant 2012 dollars. Estimated print advertising revenues of $19.0 billion in 2012 will be the lowest annual amount spent on print newspaper advertising since the NAA started tracking ad revenue in 1950.
The decline in print newspaper advertising to a 62-year low is amazing by itself, but the sharp decline in recent years is pretty stunning. This year’s ad revenues of $19 billion will be less than half of the $46 billion spent just five years ago in 2007, and a little more than one-third of the $56.5 billion spent in 2004.
Here’s another perspective: It took 50 years to go from about $20 billion in annual newspaper print ad revenue in 1950 (adjusted for inflation) to $63.5 billion in 2000, and then only 12 years to go from $63.5 billion back to less than $20 billion in 2012.
Even when online advertising is added to the print ads (see red line in chart), the combined total spending for print and online advertising this year will still only be about $22.4 billion, less than the $22.47 billion spent on print advertising in 1953.
I was fortunate to be able to retire from newspaper reporting in 1998. Otherwise I’d be in the same position as the auto workers or steel workers a few decades ago. My local newspaper and former employer, the Democrat and Chronicle here in Rochester, N.Y., is gradually being hollowed out, as resources are shifted to the Internet and specialty publications. Good reporting is being done, but by a staff that is being stretched thinner and thinner. The problem is that you can get certain types of information over the Internet free and instantaneously that you would have to pay for and wait to get from newspapers—sports scores, stock prices, weather reports, movie schedules, classified advertising.
I still subscribe, though. I recently suspended my subscription out of irritation with the D&C subscription service, but accepted their offer for renewal after a few weeks of trying to get along without a daily newspaper. American print newspapers historically have been important to binding together geographic communities and giving them an identity. I wonder if on-line publications can fill the same role. I spend more time each day on-line than I do reading my local newspaper, but my information about Rochester comes mainly from the D&C and City newspaper, the city’s alternative weekly.
Hat tip to Rod Dreher.
Companies with women on their boards performed better in challenging markets than those with all-male boards in a study suggesting that mixing genders may temper risky investment moves and increase return on equity.
Shares of companies with a market capitalization of more than $10 billion and with women board members outperformed comparable businesses with all-male boards by 26 percent worldwide over a period of six years, according to a report by the Credit Suisse Research Institute, created in 2008 to analyze trends expected to affect global markets.
The number of women in boardrooms has increased since the end of 2005 as countries such as Norway instituted quotas and companies including Facebook Inc. added female directors after drawing criticism for a lack of gender diversity. The research, which includes data from 2,360 companies, shows a greater correlation between stock performance and the presence of women on the board after the financial crisis started four years ago.
“Companies with women on boards really outperformed when the downturn came through in 2008,” Mary Curtis, director of thematic equity research at Credit Suisse in Johannesburg and an author of the report, said in a telephone interview. “Stocks of companies with women on boards tend to be a little more risk averse and have on average a little less debt, which seems to be one of the key reasons why they’ve outperformed so strongly in this particular period.”
I wouldn’t over-generalize about women being more risk-averse than men, but the Clinton, Bush and Obama administrations would all have been better off if they’d heeded the warnings of Brooksley Born, Sheila Bair and Elizabeth Warren about the dangers of giving Wall Street free rein, and then bailing them out unconditionally. They were all up against a macho posturing that is more common among Washington officials and Wall Street speculators than it is among men whose jobs actually require physical strength and physical courage.
Where human affairs are concerned, the greater the diversity of viewpoints and life experiences within the decision-making group, the better the decisions are likely to be. I imagine that a board of directors with a female majority and one or two men would make better decisions on average than an all-female board, but it will be many decades before there are enough examples to do that study.
When I was a newspaper reporter, I used to console myself with the thought that at least I had a job that could not be shipped overseas. This is no longer true. Some newspapers are outsourcing editing and even reporting of local news to countries such as India and the Philippines.
All this is made possible by the Internet. A lot of information is available on-line. You don’t have to walk to city hall or the county courthouse to get it. You don’t have to be in the same city to interview a local official by phone. Press releases are available on-line, and you can rewrite them as easily in one place as another. Some public meetings are televised and even available on YouTube; you don’t have to be at the meeting to summarize what was said.
What is lost is the background knowledge that comes from living in a community, which enables you to understand the significance and context of what you report. But this is not quantifiable. For certain newspaper executives, particularly executives of newspaper chains who spend only a few years in each place, what counts is cutting and improving the next quarter’s financial results. Longer-term consequences are somebody else’s problem.
Click on Now They’re Even Outsourcing “Local” Journalism for a report by Ryan Smith on Journatic and Blockshopper, two journalism outsourcing companies. He told how he worked for Journatic as a copy editor of articles written about local news in Chicago, Houston and other U.S. cities by far-distant reports in, among other places, the Philippines.
Click on Outsourcing Journalism for an older report on outsourcing local news editing and reporting to India.
Click on Media Outsourcing and Journatic: Hate the Player, Not the Game for a defense of news outsourcing. The argument is that by giving up the low-end side of reporting, you free up reporters for higher-value activities..
Click on Clayton Christensen for the home page of the man who wrote the book on what happens when you give up on the basic “low-end” work.
Microsoft is a once-dominant company in its industry—like Sears Roebuck, like General Motors, like IBM, like Kodak—that is resting on its laurels while competitors forge ahead, Kurt Eichenwald reports in the current issue of Vanity Fair. Its stock price has barely budged in the past 10 years, while the price of Apple Computer’s stock has increased 10-fold. Just one Apple product, the i-Phone, brings in more revenue than Windows, Office, Xbox, Bing, Windows Phone and every other Microsoft product put together. Last week, after Vanity Fair went to press, Microsoft reported its first quarterly loss since it became a public company.
Eichenwald puts the responsibility on Bill Gates’ successor, Steve Ballmer. He indicts Ballmer for all the usual sins—too much bureaucracy, too much caution, short-term thinking—but he sees the heart of the problem as a management practice called “stack ranking,” which was pioneered by CEO Jack Welch of General Electric.
Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. … …
“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.” … …
For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. And the reviews had real-world consequences: those at the top received bonuses and promotions, those at the bottom usually received no cash or were shown the door.
… … As a result, Microsoft employees not only had to do a good job, but also worked hard to make sure their colleagues did not.
“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to make sure they didn’t get ahead of me in the rankings.”
Worse, because the reviews came every six months, employees and their supervisors—who were also ranked—focused on their short-term performance, rather than on longer efforts to innovate.
“The six-month reviews led to a lot of bad decision-making,” one software designer said. “People planned their days and their years around the reviews around the review, rather than around products. You really had to focus on that six-month performance rather than what was right for the company.”
It is as if you had a football team, in which the two best players would get huge bonuses and the worst player would be dropped after the end of the season, regardless of the team’s won-lost record for the season. How could they even function as a team? Each individual would focus not on the score, but on making himself look good, and his teammates look bad.
W. Edwards Deming, the father of Total Quality Management, strongly opposed performance reviews and merit ratings. Rank order is meaningless, he said, because, among any group of people, the differences are usually not statistically significant. Usually the whole group is doing well, or doing poorly, and it is usually for reasons that group members don’t understand or don’t control. The key to quality management, he said, is figure out what those reasons are.
It is true, Deming said, that sometimes there are people who are so outstandingly good at what they do that what they do is in a different category from all the rest, and there are other people who are completely unable to do their jobs. But it always will be obvious who these people are. It is not worth bothering about differences among people so minor that you have to do an evaluation process to determine what they are.
Deming thought most people have an innate desire to do work they can be proud of, and management’s desire is to show them how. His ideas were fashionable 30 years ago, but they are in eclipse now. The prevailing idea now is to sort people into winners and losers, reward the winners and punish the losers. to be rewarded. And anybody who, by some definition, is a loser is not worth bothering about or listening to. The result is a kind of Hunger Games society in which people are too concerned with surviving high-stakes competition to be able to think of whether there is a better way.
Click on Microsoft’s Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant for Vanity Fair’s sample of the article and an interesting comment thread. You have to obtain the magazine to read the whole article. The article is well worth reading in full.
Click on Microsoft reports first quarterly loss as a public company for a report from the Washington Post on Microsoft’s latest financial results.
Click on Deming and the rise and fall of quality for an alternative philosophy of management.